Abstract

http://ssrn.com/abstract=1757737
 
 

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An Alternative Bayesian Approach to Structural Breaks in Time Series Models


Sjoerd Van den Hauwe


Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Richard Paap


Erasmus University Rotterdam (EUR) - Department of Econometrics; Tinbergen Institute; Erasmus Research Institute of Management (ERIM)

Dick J. C. Van Dijk


Erasmus University Rotterdam - Erasmus School of Economics - Econometric Institute; ERIM

February 7, 2011

Tinbergen Institute Discussion Paper 11-023/4

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.

Number of Pages in PDF File: 49

Keywords: Structural breaks, Bayesian analysis, forecasting, MCMC methods, nonlinear time series

JEL Classification: C11, C22, C51, C53, C63

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Date posted: February 10, 2011  

Suggested Citation

van den Hauwe, Sjoerd and Paap, Richard and van Dijk, Dick J. C., An Alternative Bayesian Approach to Structural Breaks in Time Series Models (February 7, 2011). Tinbergen Institute Discussion Paper 11-023/4. Available at SSRN: http://ssrn.com/abstract=1757737 or http://dx.doi.org/10.2139/ssrn.1757737

Contact Information

Sjoerd Van den Hauwe (Contact Author)
Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )
P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands
Richard Paap
Erasmus University Rotterdam (EUR) - Department of Econometrics ( email )
P.O. Box 1738
3000 DR Rotterdam
Netherlands
Tinbergen Institute ( email )
P.O. Box 1738
3000 DR Rotterdam
Netherlands
Erasmus Research Institute of Management (ERIM) ( email )
P.O. Box 1738
3000 DR Rotterdam
Netherlands
Dick J.C. Van Dijk
Erasmus University Rotterdam - Erasmus School of Economics - Econometric Institute
P.O. Box 1738
3000 DR Rotterdam
Netherlands
ERIM ( email )
P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 1263 (Phone)
+31 10 4089162 (Fax)
HOME PAGE: http://people.few.eur.nl/djvandijk
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