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

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Abstract

Many modeling issues and policy debates in macroeconomics depend on whether macroeconomic times 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, for example, a threshold autoregressive model) or whether they merely reflect changing structure over time. 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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  • 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.
  • Handle: RePEc:fip:fednsr:59
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    1. Dale J. Poirier, 1995. "Intermediate Statistics and Econometrics: A Comparative Approach," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161494, December.
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