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A time-varying parameter structural model of the UK economy

Research output: Contribution to journalArticle

Open Access Status

  • Embargoed (until 28/05/21)

Author(s)

George Kapetanios, Riccardo M. Masolo, Katerina Petrova, Matthew Waldron

School/Research organisations

Abstract

We estimate a time-varying parameter structural macroeconomic model of the UK economy, using a Bayesian local likelihood methodology. This enables us to estimate a large open-economy DSGE model over a sample that comprises several different monetary policy regimes and an incomplete set of data. Our estimation identifies a gradual shift to a monetary policy regime characterised by an increased responsiveness of policy towards inflation alongside a decrease in the inflation trend down to the two percent target level. The time-varying model also performs remarkably well in forecasting and delivers statistically significant accuracy improvements for most variables and horizons for both point and density forecasts compared to the standard fixed-parameter version.
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Original languageEnglish
Article number103705
JournalJournal of Economic Dynamics and Control
Volume106
Early online date28 May 2019
DOIs
Publication statusPublished - Sep 2019

    Research areas

  • DSGE models, Open economy, Time varying parameters, UK economy

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