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Title: Time Varying Coefficient Models; A Proposal for Selecting the Coefficient Driver Sets
Authors: Hall, Stephen G.
Swamy, P. A. V. B.
Tavlas, George S.
First Published: Dec-2014
Publisher: Cambridge University Press (CUP)
Citation: Macroeconomic Dynamics, 2016
Abstract: Coefficient drivers are observable variables that feed into time-varying coefficients (TVCs) and explain at least part of their movement. To implement the TVC approach, the drivers are split into two subsets, one of which is correlated with the bias-free coefficient that we want to estimate and the other with the misspecification in the model. This split, however, can appear to be arbitrary. We provide a way of splitting the drivers that takes account of any nonlinearity that may be present in the data, with the aim of removing the arbitrary element in driver selection. We also provide an example of the practical use of our method by applying it to modeling the effect of ratings on sovereign-bond spreads.
Series/Report no.: University of Leicester Department of Economics Working Paper;14/18
DOI Link: 10.1017/S1365100515000279
ISSN: 1365-1005
eISSN: 1365-1005
Version: Post-print
Status: Peer-reviewed
Type: Journal Article
Rights: Copyright Cambridge University Press. Archived with reference to SHERPA/RoMEO
Description: JEL Classification Numbers C130 C190 C220
Appears in Collections:Published Articles, Dept. of Economics

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