Time-varying effects of external shocks on macroeconomic fluctuations in Peru: an empirical application using TVP-VAR- SV models
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Date
2022-03Author
Rodríguez, Gabriel
Ojeda A. Cunya, Junior
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This study uses a family of VAR models with time-varying coefficients and stochastic volatility
(TVP-VAR-SV) to analyze the impact of external shocks on output growth and inflation in Peru in
1992Q1-2017Q1. The statistical relevance of the models is assessed using the deviance information
criterion (DIC) and the marginal log-likelihood calculated using the cross-entropy (CE) method.
The results show that: (i) it is more relevant to introduce SV than TVP; i.e., the best fitting
model admits only varying intercepts and SV; and TVP-VAR and CVAR are the least performing
models; (ii) the models impulse response functions indicate that the impacts from external shocks
are different under high inflation, economic crisis, and monetary policy change, with a greater
impact in episodes of high uncertainty; (iii) the impact and importance of external shocks has
increased over time; and (iv) the results are robust to changes in the priors, the lag structure,
order of the variables, the external variable, and the variable for domestic economic activity.
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