An Alternative Bayesian Approach to Structural Breaks in Time Series Models
Tinbergen Institute Discussion Paper 11-023/4
49 Pages Posted: 10 Feb 2011
Date Written: February 7, 2011
Abstract
We 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.
Keywords: Structural breaks, Bayesian analysis, forecasting, MCMC methods, nonlinear time series
JEL Classification: C11, C22, C51, C53, C63
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Forecasting Time Series Subject to Multiple Structural Breaks
By M. Hashem Pesaran, Davide Pettenuzzo, ...
-
Forecasting Time Series Subject to Multiple Structural Breaks
By M. Hashem Pesaran, Davide Pettenuzzo, ...
-
Are Apparent Findings of Nonlinearity Due to Structural Instability in Economic Time Series?
By Gary Koop and Simon Potter
-
Efficient Bayesian Inference for Multiple Change-Point and Mixture Innovation Models
By Paolo Giordani and Robert Kohn
-
Improving Forecast Accuracy by Combining Recursive and Rolling Forecasts
-
Detecting and Predicting Forecast Breakdowns
By Raffaella Giacomini and Barbara Rossi
-
Forecasting with Small Macroeconomic VARs in the Presence of Instabilities
-
A Unified Approach to Nonlinearity, Structural Change, and Outliers
By Paolo Giordani, Robert Kohn, ...