Time-Varying Parameter Model And Its Application In Economics And Finance

With the advancement of technology,institutional changes and some sudden economic events,the relationship between economic variables will inevitably change.In addition,Lucas also pointed out that the micro-individual’s behavioral patterns will be adjusted at any time as expected,and the economic aggregate relationship will also change accordingly.For this reason,it is necessary to introduce the time-varying parameter(TVP)model which allows the relationship between variables to be variable.This paper systematically introduces the TVP model and its estimation method.Then we use this model to analyze the actual economic and financial issues.To sum up,the research content of this article mainly includes the following aspects:Firstly,based on the time-varying hybrid new Keynes Phillips curve containing stochastic volatility(SV),an empirical study was conducted on the inertia of China’s currency.In order to solve the estimation problem of the empirical model,this paper first constructs a TVP-SV model containing endogenous variables,and proposes a corresponding MCMC estimation algorithm.The results show that the inflation inertia in China has dropped significantly after 2005.Secondly,a method based on time-varying parameter autoregressive(TVP-VAR)model to analyze the volatility spillover effect is proposed,and the time-varying fluctuations between global stock markets between 1993 and 2016 are represented by eight international stock markets including China,the United States,and the United Kingdom.Spillover effects were analyzed.The empirical results show that the overall volatility spillover effect between international stock markets has shown an overall upward trend,especially during the financial fluctuation period.Moreover,the study finds that the total volatility spillover effect between international stock markets can be explained by economic fundamentals and market contagion,and has a certain correlation with the adjustment of US monetary policy and policy uncertainty.Thirdly,using the LT-TVP-VAR model,an empirical study was conducted on the interrelationships between macroeconomic variables such as house prices and output,inflation,and money supply in China during 1996-2017.The results show that excess liquidity is an important reason for the short-term excessive rise in housing prices in our country,while the improvement of economic fundamentals helps eliminate the deviation of housing prices from its long-term trend.Lastly,taking cotton futures as an example,based on non-parametric TVP-VAR model and spillover index method,the impact of agricultural support policies on the price transmission of agricultural product futures market is studied.The empirical results show that during the implementation of the policy of temporary cotton purchase and storage,the price transmission effect between the domestic cotton spot market and the domestic and foreign cotton futures both declined significantly,but gradually resumed after the implementation of the target price subsidy policy;the reserve cotton "rounds out" The policy also has a certain negative impact on the price transmission in the futures market,but the impact is relatively small.