Sims-Sargent Observable Index Model

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Sims-Sargent Observable Index Model

Postby TomDoan » Wed Dec 16, 2015 2:46 pm

This is an example of an "observable index model" from Sargent & Sims(1977), "Business cycle modeling without pretending to have too much a priori economic theory," in New Methods in Business Cycle Research: Proceedings from a Conference, Federal Reserve Bank of Minneapolis. This is famously the one paper co-written by the 2011 Nobel laureates.

This paper is heavily cited in the dynamic factor model literature, but neither of the techniques actually used in that paper: the observable index model (Sims) or the unobservable (frequency domain) index model (Sargent) form the basis for what is done nowadays. The observable index model is a reduced form VAR; Sims' hope was that it was restricted enough to provide decent forecasts when a full VAR couldn't because of overparameterization. For that purpose, it was relatively quickly supplanted by BVAR's, which could be computed much faster. There's nothing inherently wrong with the model; it just was proposed at a time that it was too costly to use.

The data set is from Bernanke, Boivin & Eliasz (2005), "Measuring the Effects of Monetary Policy: A Factor-augmented Vector Autoregressive (FAVAR) Approach," The Quarterly Journal of Economics, vol. 120(1), pages 387-422. The model is applied to 15 Industrial Production series.

observableindex.rpf
Program file
(6.41 KiB) Downloaded 167 times

bbedata.rat
Data file
(540.25 KiB) Downloaded 212 times


Last bumped by TomDoan on Wed Dec 16, 2015 2:46 pm.
TomDoan
 
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