Estimating Long-Run Risks in Developed and Developing Countries: A Particle MCMC Approach

45 Pages Posted: 19 Dec 2018 Last revised: 11 Jan 2019

See all articles by Steven Wei Ho

Steven Wei Ho

University of Nevada, Las Vegas; Columbia University, Graduate School of Arts and Sciences, Department of Economics

Yunmin Wu

Columbia University, Graduate School of Arts and Sciences, Department of Economics, Students

Date Written: December 1, 2018

Abstract

We estimate a generalized version of the Long-Run Risk model in a panel of developed and developing countries using consumption, dividend growth, and asset returns data by utilizing the particle filter, while allowing for measurement errors in consumption data at quarterly and annual frequencies. We extend the exercise by Schorfheide et al (2018) to non-U.S. countries. Our estimations provide further evidence in support of the Long-Run Risk model and in the existence of a common small persistent component in consumption growth, dividend growth, and cash-flow growth. In certain developing countries with a short data series such as Malaysia, it is important to include asset return data to generate a large posterior estimate on the persistence parameter ρ. Our results thus further challenge the view that consumption growth is an iid process with international evidence. The estimated model can produce asset-pricing moments consistent with data.

Keywords: Long-Run Risk, Bayesian Estimation, International Finance

JEL Classification: C11, C58, G12, F30, E21

Suggested Citation

Ho, Steven Wei and Wu, Yunmin, Estimating Long-Run Risks in Developed and Developing Countries: A Particle MCMC Approach (December 1, 2018). Available at SSRN: https://ssrn.com/abstract=3294266 or http://dx.doi.org/10.2139/ssrn.3294266

Steven Wei Ho (Contact Author)

University of Nevada, Las Vegas ( email )

4505 S. Maryland Parkway
Las Vegas, NV 89154
United States

Columbia University, Graduate School of Arts and Sciences, Department of Economics ( email )

420 W. 118th Street
New York, NY 10027
United States

Yunmin Wu

Columbia University, Graduate School of Arts and Sciences, Department of Economics, Students ( email )

New York, NY
United States

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