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Characterizing economic trends by Bayesian stochastic model specification search

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  • Stefano Grassi
  • Tommaso Proietti

Abstract

We apply a recently proposed Bayesian model selection technique, known as stochastic model specification search, for characterising the nature of the trend in macroeconomic time series. We illustrate that the methodology can be quite successfully applied to discriminate between stochastic and deterministic trends. In particular, we formulate autoregressive models with stochastic trends components and decide on whether a specific feature of the series, i.e. the underlying level and/or the rate of drift, are fixed or evolutive.

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Paper provided by Economics and Econometrics Research Institute (EERI), Brussels in its series EERI Research Paper Series with number EERI_RP_2010_25.

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Date of creation: 25 Aug 2010
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Handle: RePEc:eei:rpaper:eeri_rp_2010_25

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Keywords: Bayesian model selection; stationarity; unit roots; stochastic trends; variable selection.;

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