A time-varying-parameter vector autoregression model with stochastic volatility

By José Carlos Gonzáles Tanaka The basic Vector Autoregression (VAR) model is heavily used in macro-econometrics for explanatory purposes and forecasting purposes in trading. In recent years, a VAR model with time-varying parameters has been used to understand the interrelationships between macroeconomic variables. Since Primiceri (2005), econometricians have been applying these models using macroeconomic variables such as:

• Japan time series (Nakahima, 2011)
• US Bond yields (Fischer et al.,...