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Testing for integration using evolving trend and seasonals models: A Bayesian approach

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  • Koop, Gary
  • Dijk, Herman K. Van

Abstract

In this paper, we make use of state space models to investigate the presence of stochastic trends in economic time series. A model is specified where such a trend can enter either in the autoregressive representation or in a separate state equation. Tests based on the former are analogous to Dickey-Fuller tests of unit roots, while the latter are analogous to KPSS tests of trend-stationarity. We use Bayesian methods to survey the properties of the likelihood function in such models and to calculate posterior odds ratios comparing models with and without stochastic trends. We extend these ideas to the problem of testing for integration at seasonal frequencies and show how our techniques can be used to carry out Bayesian variants of either the HEGY or Canova-Hansen test. Stochastic integration rules, based on Markov Chain Monte Carlo, as well as deterministic integration rules are used. Strengths and weaknesses of each approach are indicated.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 97 (2000)
Issue (Month): 2 (August)
Pages: 261-291

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Handle: RePEc:eee:econom:v:97:y:2000:i:2:p:261-291

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Web page: http://www.elsevier.com/locate/jeconom

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  1. Chib, Siddhartha & Greenberg, Edward, 1994. "Bayes inference in regression models with ARMA (p, q) errors," Journal of Econometrics, Elsevier, vol. 64(1-2), pages 183-206.
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  4. Canova, Fabio & Hansen, Bruce E, 1995. "Are Seasonal Patterns Constant over Time? A Test for Seasonal Stability," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 237-52, July.
  5. Hylleberg, S. & Pagan, A.R., 1995. "Seasonal Integration and the Evolving Seasonals Model," Papers 281, Australian National University - Department of Economics.
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  8. Gary Koop & Simon M. Potter, 2004. "Dynamic asymmetries in US unemployment," ESE Discussion Papers 15, Edinburgh School of Economics, University of Edinburgh.
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  14. Gary Koop & Simon M. Potter, 2001. "Are apparent findings of nonlinearity due to structural instability in economic time series?," Econometrics Journal, Royal Economic Society, vol. 4(1), pages 38.
  15. Hannan, E J & Terrell, R D & Tuckwell, N E, 1970. "The Seasonal Adjustment of Economic Time Series," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 11(1), pages 24-52, February.
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  25. repec:fth:erroem:9936/a is not listed on IDEAS
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