Assessing fit Sample Clauses

Assessing fit. The final two rows of Table 3 report the log-values of MDD for Mmp+vol and M(freq+mp)+vol. When comparing the model with independent changes in monetary policy behavior and shocks variances, [Mmp+vol] with Mvol allowing only drifts in variance shocks, the former delivers the best-fit with a log-value difference of 3.0 for the Bridge method and 2.0 for the other two methods, implying important changes in the behavior of the Federal Reserve over time. Furthermore, the addition of time variation in the frequency of price changes in conjunction with monetary policy switches, M(freq+mp)+vol, does not improve the fit. This may be explained simply by the fact that the estimates for θp(st) are clearly the same across the two regimes, and in consequence, the data cannot favor one model over another. Once again, the three marginal likelihood computation methods draw the same conclusion, reinforcing our previous results. We conclude that the Xxxxx model is a well-specified approximating model, guaranteeing the invariance of the Xxxxx pric- ing parameter while suggesting that it is not particularly harmful to model a Xxxxx parameter as time-varying if one is interested in examining economic implications possibly arising from this variation.
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