Economics - Research Publications

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Start date: 2010 × Author: Li, Zhuo ×

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    Sparse change-point VAR models
    Dufays, A ; Li, Z ; Rombouts, JVK ; Song, Y (WILEY, 2021-09)
    Abstract Change‐point (CP) VAR models face a dimensionality curse due to the proliferation of parameters that arises when new breaks are detected. We introduce the Sparse CP‐VAR model which determines which parameters truly vary when a break is detected. By doing so, the number of new parameters to be estimated at each regime is drastically reduced and the break dynamics becomes easier to be interpreted. The Sparse CP‐VAR model disentangles the dynamics of the mean parameters and the covariance matrix. The former uses CP dynamics with shrinkage prior distributions, while the latter is driven by an infinite hidden Markov framework. An extensive simulation study is carried out to compare our approach with existing ones. We provide applications to financial and macroeconomic systems. It turns out that many off‐diagonal VAR parameters are zero for the entire sample period and that most break activity is in the covariance matrix. We show that this has important consequences for portfolio optimization, in particular when future instabilities are included in the predictive densities. Forecasting‐wise, the Sparse CP‐VAR model compares favorably to several time‐varying parameter models in terms of density and point forecast metrics.
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    The evolution of Ottoman–European market linkages, 1469–1914: Evidence from dynamic factor models
    Panza, L ; Li, Z ; Song, Y (Elsevier, 2019)
    This paper exploits data on a set of traded goods to undertake the first comprehensive empirical analysis of market integration between the Ottoman Empire and Europe from 1469 to 1914. Computing dynamic factor models via Bayesian inference, we overcome such data constraints as missing observations and a small sample size. The results of this analysis suggest that there were persistent market linkages until the first half of the 19th century, followed by a decline in price convergence. We also find that the intensity of Ottoman–European conflict had a negative effect on integration, especially during the 1844–1914 period.