Main Approaches to the Use of Time-Varying Parameter Models in Macroeconomic Modeling

Abstract

Time-varying parameter models have been widely spread in macroeconomic studies carried out over the past 20 years. Following the seminal papers in this field, various authors began to apply such models to analyze the time-varying behavior of such macroeconomic parameters as volatility, long-term economic growth, trend inflation, the persistence of inflation and oil prices, as well as the dependence of the main macroeconomic variables on oil prices. This review provides a methodological basis for using time-varying parameter models as one of the underlying tools of macroeconomic modeling and forecasting, as such models allow taking into account temporary changes in the relationships between different variables.

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