System Priors for Econometric Time Series
This paper introduces “system priors” into Bayesian analysis of econometric time series and provides a simple and illustrative application. Unlike priors on individual parameters, system priors offer a simple and efficient way of formulating well-defined and economically meaningful priors about model properties that determine the overall behavior of the model. The generality of system priors is illustrated using an AR(2) process with a prior that its dynamics comes mostly from business-cycle frequencies.
JEL codes: C11, C18, C22, C51
Keywords: Bayesian analysis, system priors, time series
Issued: May 2017
Download: CNB WP No. 1/2017 (pdf, 383 kB)