Dynamic shrinkage in time‐varying parameter stochastic volatility in mean models

  title={Dynamic shrinkage in time‐varying parameter stochastic volatility in mean models},
  author={Florian Huber and Michael Pfarrhofer},
  journal={Journal of Applied Econometrics (Chichester, England)},
  pages={262 - 270}
Summary Successful forecasting models strike a balance between parsimony and flexibility. This is often achieved by employing suitable shrinkage priors that penalize model complexity but also reward model fit. In this article, we modify the stochastic volatility in mean (SVM) model by introducing state‐of‐the‐art shrinkage techniques that allow for time variation in the degree of shrinkage. Using a real‐time inflation forecast exercise, we show that employing more flexible prior distributions… 

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