An Alternative Bayesian Approach to Structural Breaks in Time Series Models
AbstractWe propose a new approach to deal with structural breaks in time series models. The key contribution is an alternative dynamic stochastic specification for the model parameters which describes potential breaks. After a break new parameter values are generated from a so-called baseline prior distribution. Modeling boils down to the choice of a parametric likelihood specification and a baseline prior with the proper support for the parameters. The approach accounts in a natural way for potential out-of-sample breaks where the number of breaks is stochastic. Posterior inference involves simple computations that are less demanding than existing methods. The approach is illustrated on nonlinear discrete time series models and models with restrictions on the parameter space.
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Bibliographic InfoPaper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 11-023/4.
Date of creation: 08 Feb 2011
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Web page: http://www.tinbergen.nl
Structural breaks; Bayesian analysis; forecasting; MCMC methods; nonlinear time series;
Find related papers by JEL classification:
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-26 (All new papers)
- NEP-ECM-2011-02-26 (Econometrics)
- NEP-ETS-2011-02-26 (Econometric Time Series)
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