Estimation and forecasting with time-varying parameters models and sequential method

In this research, we examine the use of time-varying parameters (TVP) models for out-of-sample forecasting within the realms of macroeconomics and finance. From a methodological perspective, the efficacy of the Sequential Monte Carlo (SMC) method in estimating TVP models is emphasized. Notably, SMC provides a distinct computational edge, requiring substantially less processing time relative to the traditional Markov Chain Monte Carlo (MCMC) method, all the while preserving predictive accuracy. Furthermore, we augment a generic SMC approach by incorporating the variational Bayes method, thereby enabling it to estimate large TVP models with an integrated variable selection prior. Empirically, we embark on a detailed exploration of three out-of-sample predictive applications in the fields of macroeconomics and finance: 1) the estimation of US GDP and inflation via a trivariate VAR model; 2) the forecasting of monthly returns of the S$\&$P500 index, which integrates a comprehensive set of 143 predictors; and 3) the nowcasting of US GDP using a TVP VAR model enriched with mixed-frequency variables. Consistently, across these analytical domains, findings suggest that TVP models bolster predictive capabilities, surpassing both their fixed-parameter counterparts and other advanced methodologies.

Name thesis:degree_name

Ph.D.

Level thesis:degree_level

Dissertation

Discipline thesis:degree_discipline

Economics

Grantor

University of Illinois at Urbana-Champaign

Year dc:date

2024

Author dc:creator

• Sun, Zhendong

Contributors dc:contributor

• Amir-Ahmadi, Pooyan
• Bernhardt, Dan
• Xie, Shihan
• Chen, Yuguo

• Economic Forecasting
• Time-varying Parameters Model
• Sequential Monte Carlo

Statement dc:rights

• Copyright 2024 Zhendong Sun

Language dc:language

en, eng

Handle dc:identifier

https://hdl.handle.net/2142/124632

OAI record oai:identifier

https://www.ideals.illinois.edu/oai-pmh?verb=GetRecord&metadataPrefix=etdms&identifier=oai%3Awww.ideals.illinois.edu%3A2142%2F124632