BoE paper adds time-varying parameters to DSGE model
Method allows parameters to shift over time as the structure of the economy changes
Economists at the Bank of England have applied a method of modelling that allows parameters to vary over time, improving their forecasts of the UK economy.
A time varying parameter structural model of the UK economy by Katerina Petrova, George Kapetanios, Riccardo Masolo and Matthew Waldron focuses on allowing the model to adapt to changes in the structure of the economy. There is plenty of evidence this has happened in the UK in recent decades, the authors write, so holding parameters constant
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