A time-varying parameter structural model of the UK economy

George Kapetanios, Riccardo M. Masolo, Katerina Petrova*, Matthew Waldron

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

7 Citations (Scopus)


We estimate a time-varying parameter structural macroeconomic model of the UK economy, using a Bayesian local likelihood methodology. This enables us to estimate a large open-economy DSGE model over a sample that comprises several different monetary policy regimes and an incomplete set of data. Our estimation identifies a gradual shift to a monetary policy regime characterised by an increased responsiveness of policy towards inflation alongside a decrease in the inflation trend down to the two percent target level. The time-varying model also performs remarkably well in forecasting and delivers statistically significant accuracy improvements for most variables and horizons for both point and density forecasts compared to the standard fixed-parameter version.

Original languageEnglish
Article number103705
JournalJournal of Economic Dynamics and Control
Early online date28 May 2019
Publication statusPublished - Sept 2019


  • DSGE models
  • Open economy
  • Time varying parameters
  • UK economy


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