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A Bayesian Analysis of Unit Roots and Structural Breaks in the Level, Trend, and Error Variance of Autoregressive Models of Economic Series


  • Loukia Meligkotsidou
  • Elias Tzavalis
  • Ioannis Vrontos


In this article, a Bayesian approach is suggested to compare unit root models with stationary autoregressive models when the level, the trend, and the error variance are subject to structural changes (known as breaks) of an unknown date. Ignoring structural breaks in the error variance may be responsible for not rejecting the unit root hypothesis, even if allowance is made in the inferential procedures for breaks in the mean. The article utilizes analytic and Monte Carlo integration techniques for calculating the marginal likelihoods of the models under consideration, in order to compute the posterior model probabilities. The performance of the method is assessed by simulation experiments. Some empirical applications of the method are conducted with the aim to investigate if it can detect structural breaks in financial series, especially with changes in the error variance.

Suggested Citation

  • Loukia Meligkotsidou & Elias Tzavalis & Ioannis Vrontos, 2011. "A Bayesian Analysis of Unit Roots and Structural Breaks in the Level, Trend, and Error Variance of Autoregressive Models of Economic Series," Econometric Reviews, Taylor & Francis Journals, vol. 30(2), pages 208-249.
  • Handle: RePEc:taf:emetrv:v:30:y:2011:i:2:p:208-249
    DOI: 10.1080/07474938.2011.534046

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    Cited by:

    1. Yiannis Karavias & Elias Tzavalis, "undated". "The power performance of fixed-T panel unit root tests allowing for structural breaks," Discussion Papers 13/01, University of Nottingham, Granger Centre for Time Series Econometrics.
    2. Loukia Meligkotsidou & Elias Tzavalis & Ioannis D. Vrontos, 2012. "A Bayesian panel data framework for examining the economic growth convergence hypothesis: do the G7 countries converge?," Journal of Applied Statistics, Taylor & Francis Journals, vol. 39(9), pages 1975-1990, May.
    3. repec:taf:emetrv:v:36:y:2017:i:10:p:1123-1156 is not listed on IDEAS


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