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Christophe Planas, Econometrics and applied statistics, Institute for the Protection and Security of the Citizen (IPSC), 
The European Commission, Joint Research Centre, Italy

Title: The marginal likelihood of structural time series models with application to the US and the euro area NAIRU

Time:    Fri July 3, 2009, 1pm 
Place:   Building 28, Room 2.123, Campus Golm, Universitaet Potsdam

Abstract:
We propose a new result that helps the calculation of the marginal likelihood
in Gaussian structural time series (STS) models. For this we exploit the statistical
properties of STS models and a theorem in Dickey (1968) to obtain the likelihood
marginally to all variance parameters. Our strategy applies under inverted gamma-
2 prior distributions for the structural shocks variances. In general, we show that
marginalizing with respect to variance parameters greatly improves the accuracy
of both the Laplace and the modified harmonic mean estimators. Moreover, in
some empirically relevant cases such as the local level and the local linear trend, it
yields the marginal likelihood by single or double integration over a finite support.
We use our methodology to analyze models for the NAIRU in the US and in the
euro area. We also discuss the cases of STS models with variance breaks and
Markov-switching heteroscedasticity.

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