Are apparent findings of nonlinearity due to structural instability in economic time series?

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Are apparent findings of nonlinearity due to structural instability in economic time series?

Author Info

GARY KOOP
SIMON M. POTTER

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Abstract

Many modelling issues and policy debates in macroeconomics depend on whether macroeconomic time series are best characterized as linear or nonlinear. If departures from linearity exist, it is important to know whether these are endogenously generated (as in, e.g. a threshold autoregressive model) or whether they merely reflect changing structure over time. In this paper, we discuss a model comparison methodology which addresses these issues. We advocate a Bayesian approach and show how such an approach can be implemented in practice. An empirical exercise involving several macroeconomic time series shows that apparent findings of threshold type nonlinearities could be due to structural instability.

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Publisher Info
Article provided by Royal Economic Society in its journal The Econometrics Journal.

Volume (Year): 4 (2001)
Issue (Month): 1 ()
Pages: 38
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Handle: RePEc:ect:emjrnl:v:4:y:2001:i:1:p:38

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Paper
- Gary Koop & Simon M. Potter, 1999. "Are apparent findings of nonlinearity due to structural instability in economic time series?," Staff Reports 59, Federal Reserve Bank of New York. [Downloadable!]

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Alfred A. Haug & Pierre L. Siklos, 2002. "The Term Spread International Evidence of Non-Linear Adjustment," Working Papers 2002_08, York University, Department of Economics, revised Jul 2004. [Downloadable!]
Anthony Garratt & Gary Koop & Shaun P. Vahey, 2006. "Forecasting Substantial Data Revisions in the Presence of Model Uncertainty," Birkbeck Working Papers in Economics and Finance 0617, Birkbeck, School of Economics, Mathematics & Statistics. [Downloadable!]
Other versions:
- Anthony Garratt & Gary Koop & Shaun P. Vahey, 2006. "Forecasting Substantial Data Revisions in the Presence of Model Uncertainty," Reserve Bank of New Zealand Discussion Paper Series DP2006/02, Reserve Bank of New Zealand. [Downloadable!]
- Anthony Garratt & Gary Koop & ShaunP. Vahey, 2008. "Forecasting Substantial Data Revisions in the Presence of Model Uncertainty," Economic Journal, Royal Economic Society, vol. 118(530), pages 1128-1144, 07. [Downloadable!] (restricted)
KIANI, Khurshid M., 2007. "Business Cycle Asymmetries In Stock Returns: Robust Evidence," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 4(2), pages 99-120. [Downloadable!]
Pesaran, M.H. & Pettenuzzo, D. & Timmermann, A., 2004. "‘Forecasting Time Series Subject to Multiple Structural Breaks’," Cambridge Working Papers in Economics 0433, Faculty of Economics, University of Cambridge. [Downloadable!]
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- Pesaran, M. Hashem & Pettenuzzo, Davide & Timmermann, Allan, 2004. "Forecasting Time Series Subject to Multiple Structural Breaks," IZA Discussion Papers 1196, Institute for the Study of Labor (IZA). [Downloadable!]
- Pesaran, M Hashem & Pettenuzzo, Davide & Timmermann, Allan G, 2004. "Forecasting Time Series Subject to Multiple Structural Breaks," CEPR Discussion Papers 4636, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
- M. Hashem Pesaran & Davide Pettenuzzo & Allan Timmermann, 2004. "Forecasting Time Series Subject to Multiple Structural Breaks," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
- Hashem Pesaran & Davide Pettenuzzo & Allan Timmermann, 2006. "Forecasting Time Series Subject to Multiple Structural Breaks," Review of Economic Studies, Blackwell Publishing, vol. 73(4), pages 1057-1084, October. [Downloadable!] (restricted)
John M Maheu & Stephen Gordon, 2007. "Learning, Forecasting and Structural Breaks," Working Papers tecipa-284, University of Toronto, Department of Economics. [Downloadable!]
Other versions:
- John M. Maheu & Stephen Gordon, 2004. "Learning, Forecasting and Structural Breaks," Cahiers de recherche 0422, CIRPEE. [Downloadable!]
- John M. Maheu & Stephen Gordon, 2008. "Learning, forecasting and structural breaks," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(5), pages 553-583. [Downloadable!]
Michael G. Arghyrou & Andros Gregoriou & Alexandros Kontonikas, 2007. "Do real interest rates converge? Evidence from the European Union," Working Papers 2007_21, Department of Economics, University of Glasgow. [Downloadable!]
Other versions:
- Arghyrou, Michael G & Gregoriou, Andros & Kontonikas, Alexandros, 2007. "Do real interest rates converge? Evidence from the European Union," Cardiff Economics Working Papers E2007/26, Cardiff University, Cardiff Business School, Economics Section. [Downloadable!]
- Arghyrou, Michael G. & Gregoriou, Andros & Kontonikas, Alexandros, 2009. "Do real interest rates converge? Evidence from the European union," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(3), pages 447-460, July. [Downloadable!] (restricted)
Aaron Smallwood, 2004. "Joint Tests for Long Memory and Non-linearity: The Case of Purchasing Power Parity," Computing in Economics and Finance 2004 23, Society for Computational Economics. [Downloadable!]
Gary Koop & Simon Potter, 2007. "A flexible approach to parametric inference in nonlinear time series models," Staff Reports 285, Federal Reserve Bank of New York. [Downloadable!]
Galvão, Ana Beatriz C., 2003. "Structural Break Threshold VARs for Predicting US Recessions using the Spread," Ibmec Working Papers wpe_37, Ibmec Working Paper, Ibmec São Paulo. [Downloadable!]
Other versions:
- Ana Beatriz C. Galvao, 2006. "Structural break threshold VARs for predicting US recessions using the spread," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(4), pages 463-487. [Downloadable!]
Gary Koop & Herman K. van Dijk, 1999. "Testing for Integration using Evolving Trend and Seasonals Models: A Bayesian Approach," Tinbergen Institute Discussion Papers 99-072/4, Tinbergen Institute. [Downloadable!]
Other versions:
- G. Koop & H.K. van Dijk, 1999. "Testing for integration using evolving trend and seasonal models A Bayesian approach," Econometric Institute Report 163, Erasmus University Rotterdam, Econometric Institute. [Downloadable!]
- Gary Koop & Herman K. van Dijk & Henk Hoek, 1997. "Testing for Integration using Evolving Trend and Seasonals Models: A Bayesian Approach," Tinbergen Institute Discussion Papers 97-078/4, Tinbergen Institute. [Downloadable!]
- Van Dijk, H.K. & Koop, G., 1999. "Testing for Integration Using Evolving Trend and Seasonals Models : A Bayesian Approach," Papers 9934/a, Erasmus University of Rotterdam - Econometric Institute.
- Koop, Gary & Dijk, Herman K. Van, 2000. "Testing for integration using evolving trend and seasonals models: A Bayesian approach," Journal of Econometrics, Elsevier, vol. 97(2), pages 261-291, August. [Downloadable!] (restricted)
Gary M. Koop & Simon M. Potter, 2004. "Prior elicitation in multiple change-point models," Staff Reports 197, Federal Reserve Bank of New York. [Downloadable!]
Other versions:
- Gary Koop & Simon M. Potter, 2007. "Prior Elicitation in Multiple Change-point Models," Working Paper Series 17-07, Rimini Centre for Economic Analysis, revised Jul 2007. [Downloadable!]
- Gary Koop & Simon M. Potter, 2004. "Prior Elicitation in Multiple Change-point Models," Discussion Papers in Economics 04/26, Department of Economics, University of Leicester. [Downloadable!]
- Gary Koop & Simon M. Potter, 2009. "Prior Elicitation In Multiple Change-Point Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(3), pages 751-772, 08. [Downloadable!] (restricted)
Gary M. Koop & Simon M. Potter, 2004. "Forecasting and estimating multiple change-point models with an unknown number of change points," Staff Reports 196, Federal Reserve Bank of New York. [Downloadable!]
Other versions:
- Gary M. Koop & Simon M. Potter, 2004. "Forecasting and Estimating Multiple Change-point Models with an Unknown Number of Change-points," Discussion Papers in Economics 04/31, Department of Economics, University of Leicester. [Downloadable!]

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