Changing impact of shocks: a time-varying proxy SVAR approach

Mumtaz, Haroon; Petrova, Katerina

doi:http://dx.doi.org/10.1111/jmcb.12946

Changing impact of shocks: a time-varying proxy SVAR approach

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Mumtaz H, Petrova K. Changing impact of shocks: a time-varying proxy SVAR approach. J Money Credit Bank. 2023;55(2-3):635-54. DOI: 10.1111/jmcb.12946

Abstract

In this paper, we extend the Bayesian Proxy vector autoregression (VAR) model to incorporate time variation in the parameters. A novel Metropolis-within-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 United States and the United Kingdom and find evidence for a decline in the impact of these shocks on output growth.