Prior Elicitation in Multiple Change-Point Models

22 Pages Posted: 9 Jul 2009

See all articles by Gary Koop

Gary Koop

University of Strathclyde, Glasgow - Strathclyde Business School - Department of Economics

Simon Potter

Federal Reserve Bank of New York

Abstract

This article discusses Bayesian inference in change-point models. The main existing approaches treat all change-points equally, a priori, using either a Uniform prior or an informative hierarchical prior. Both approaches assume a known number of change-points. Some undesirable properties of these approaches are discussed. We develop a new Uniform prior that allows some of the change-points to occur out of sample. This prior has desirable properties, can be interpreted as “noninformative,” and treats the number of change-points as unknown. Artificial and real data exercises show how these different priors can have a substantial impact on estimation and prediction.

Suggested Citation

Koop, Gary and Potter, Simon, Prior Elicitation in Multiple Change-Point Models. International Economic Review, Vol. 50, Issue 3, pp. 751-772, August 2009. Available at SSRN: https://ssrn.com/abstract=1432241 or http://dx.doi.org/10.1111/j.1468-2354.2009.00547.x

Gary Koop

University of Strathclyde, Glasgow - Strathclyde Business School - Department of Economics ( email )

100 Cathedral Street
Glasgow G4 0LN
United Kingdom

Simon Potter

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-6309 (Phone)
212-720-1844 (Fax)

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