Bayesian analysis of time-varying parameter vector autoregressive model for the Japanese economy and monetary policy

Nakajima, Jouchi, Kasuya, Munehisa, and Watanabe, Toshiaki-Bayesian analysis of time-varying parameter vector autoregressive model for the Japanese economy and monetary policy This paper analyzes the time-varying parameter vector autoregressive (TVP-VAR) model for the Japanese economy and monetary policy. The parameters are allowed to follow a random walk process and estimated using the Markov chain Monte Carlo method. The empirical result reveals the time-varying structure of the Japanese economy and monetary policy during the period from 1981 to 2008. The marginal likelihoods of the TVP-VAR model and other fixed parameter VAR models are estimated for model comparison. The estimated marginal likelihoods indicate that the TVP-VAR model best fits the Japanese economic data. J. Japanese Int. Economies xxx (xx) (2011) xxx-xxx. Department of Statistical Science, Duke University, Box 90251, Durham, NC 27708-0251, United States; Research and Statistics Department, Bank of Japan, 2-1-1 Nihonbashi-Hongokucho, Chuo-ku, Tokyo 103-8660, Japan; Institute of Economic Research, Hitotsubashi University, 2-1 Naka, Kunitachi, Tokyo 186-8603, Japan. (C) 2011 Elsevier Inc. All rights reserved.