Three Applications of Time-Varying Parameter Models to Macroeconomics

Fu, Bowen

Three Applications of Time-Varying Parameter Models to Macroeconomics

Fu, Bowen

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Publication Type:: Thesis
Issue Date:: 2019

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Field	Value	Language
dc.contributor.author	Fu, Bowen
dc.date.accessioned	2020-05-25T04:43:29Z
dc.date.available	2020-05-25T04:43:29Z
dc.date.issued	2019
dc.identifier.uri	http://hdl.handle.net/10453/140918
dc.description	University of Technology Sydney. Faculty of Business.	en_AU
dc.description.abstract	This thesis includes chapters that examine the application of time-varying parameter models to three macroeconomic topics: the Phillips curve, early warning system models, and uncovered interest rate parity. Chapter 2 formally tests for time variation in the slope of the Phillips curve using a variety of measures of inflation expectations and real economic slack. We find that time variation in the slope of the Phillips curve depends on the measure of inflation expectations rather than the measure of real economic slack. We find strong evidence supporting the time-varying slopes of the Phillips curve with different measures of inflation expectations. Thus, we conclude that the slope of the Phillips curve is time varying. In Chapter 3, we both narrowly and widely replicates the results of Anundsen et al. (2016). Further, we find that allowing for time-varying parameters of early warning system models can considerably improve the in-sample model fit and out-of-sample forecasting performance based on an expanding window forecasting exercise. In Chapter 4, we consider a time-varying coefficient model with stochastic volatility for the uncovered interest parity regression. We show that jointly estimating time-varying coefficients and stochastic volatility can provide relatively reliable time-varying parameters. Using posterior samples from Bayesian estimation, we determine which United States macroeconomic variables explain the variation in time-varying coefficients and volatility based on least squares with shrinkage. Our empirical study shows that the null hypothesis of uncovered interest parity cannot be unconditionally rejected in the cases of several developed economies. Further, we show that local breaches of uncovered interest parity are mainly associated with variables from the labour market variables and the output variables in the United States, among other variables.	en_AU
dc.format	Thesis (PhD)
dc.language.iso	en_US	en_US
dc.relation	https://opus.lib.uts.edu.au/bitstream/10453/140918/2/02whole.pdf
dc.rights	au.edu.uts.lib/ppc
dc.rights	The author owns the copyright in this thesis including all reproduction and reuse rights for the work. The work may not be altered without the permission of the copyright owner. Attribution is essential when quoting or paraphrasing from this thesis.
dc.rights	info:eu-repo/semantics/openAccess
dc.title	Three Applications of Time-Varying Parameter Models to Macroeconomics	en_AU
dc.type	Thesis
utslib.copyright.status	open_access	*

Abstract:

This thesis includes chapters that examine the application of time-varying parameter models to three macroeconomic topics: the Phillips curve, early warning system models, and uncovered interest rate parity. Chapter 2 formally tests for time variation in the slope of the Phillips curve using a variety of measures of inflation expectations and real economic slack. We find that time variation in the slope of the Phillips curve depends on the measure of inflation expectations rather than the measure of real economic slack. We find strong evidence supporting the time-varying slopes of the Phillips curve with different measures of inflation expectations. Thus, we conclude that the slope of the Phillips curve is time varying. In Chapter 3, we both narrowly and widely replicates the results of Anundsen et al. (2016). Further, we find that allowing for time-varying parameters of early warning system models can considerably improve the in-sample model fit and out-of-sample forecasting performance based on an expanding window forecasting exercise. In Chapter 4, we consider a time-varying coefficient model with stochastic volatility for the uncovered interest parity regression. We show that jointly estimating time-varying coefficients and stochastic volatility can provide relatively reliable time-varying parameters. Using posterior samples from Bayesian estimation, we determine which United States macroeconomic variables explain the variation in time-varying coefficients and volatility based on least squares with shrinkage. Our empirical study shows that the null hypothesis of uncovered interest parity cannot be unconditionally rejected in the cases of several developed economies. Further, we show that local breaches of uncovered interest parity are mainly associated with variables from the labour market variables and the output variables in the United States, among other variables.

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http://hdl.handle.net/10453/140918