Template-Type: ReDIF-Paper 1.0 Author-Name: Joshua Chan Author-Name-First: Joshua Author-Name-Last: Chan Author-Email: joshua.chan@anu.edu.au Author-Workplace-Name: Australian National University Author-Name: Gary Koop Author-Name-First: Gary Author-Name-Last: Koop Author-Email: gary.koop@strath.ac.uk Author-Workplace-Name: Department of Economics, University of Strathclyde Author-Name: Roberto Leon-Gonzalez Author-Name-First: Roberto Author-Name-Last: Leon-Gonzalez Author-Email: rlg@grips.ac.jp. Author-Workplace-Name: National Graduate Institute for Policy Studies Author-Name: Rodney Strachan Author-Name-First: Rodney Author-Name-Last: Strachan Author-Email: rodney.strachan@anu.edu.au Author-Workplace-Name: The Australian National University Title: Time Varying Dimension Models Abstract: Time varying parameter (TVP) models have enjoyed an increasing popularity in empirical macroeconomics. However, TVP models are parameter-rich and risk over-fitting unless the dimension of the model is small. Motivated by this worry, this paper proposes several Time Varying dimension (TVD) models where the dimension of the model can change over time, allowing for the model to automatically choose a more parsimonious TVP representation, or to switch between different parsimonious representations. Our TVD models all fall in the category of dynamic mixture models. We discuss the properties of these models and present methods for Bayesian inference. An application involving US in?ation forecasting illustrates and compares the different TVD models. We find our TVD approaches exhibit better forecasting performance than several standard benchmarks and shrink towards parsimonious specifications. Length: 34 pages Creation-Date: 2011-04 Revision-Date: Publication-Status: File-URL: http://www.strath.ac.uk/media/1newwebsite/departmentsubject/economics/research/researchdiscussionpapers/2011/11-16_Final.pdf File-Format: Application/pdf Number: 1116 Classification-JEL: C11, C24, C32 Keywords: mixture model, model change, Bayesian Handle: RePEc:str:wpaper:1116