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No. 875: Changing impact of shocks: a time-varying proxy SVAR approach

Haroon Mumtaz , Queen Mary University of London
Katerina Petrova , University of St. Andrews

November 7, 2018

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Abstract

In this paper we extend the Bayesian Proxy VAR to incorporate time variation in the parameters. A Gibbs sampling algorithm is provided to approximate the posterior distributions of the model's parameters. Using the proposed algorithm, we estimate the time-varying effects of taxation shocks in the US and show that there is limited evidence for a structural change in the tax multiplier.

J.E.L classification codes: C2,C11, E3

Keywords:Time-Varying parameters, Stochastic volatility, Proxy VAR, tax shocks

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