We develop an unobserved component model in which the short-term interest rate is composed of a stochastic trend and a stationary cycle. Using the Nelson-Siegel model of the yield curve as inspiration, we estimate an extremely parsimonious state-space model of interest rates across time and...

We establish the relationships between certain Bayesian and classical approaches to instrumental variables regression. We determine the form of priors that lead to posteriors for structural parameters that have similar properties as classical 2SLS and LIML and in doing so provide some new...