Modelling Breaks and Clusters in the Steady States of Macroeconomic Variables

17 Pages Posted: 24 Feb 2012

See all articles by Joshua C. C. Chan

Joshua C. C. Chan

University of Technology Sydney (UTS) - UTS Business School; Purdue University

Gary Koop

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

Date Written: February 2012

Abstract

Macroeconomists working with multivariate models typically face uncertainty over which (if any) of their variables have long run steady states which are subject to breaks. Furthermore, the nature of the break process is often unknown. In this paper, we draw on methods from the Bayesian clustering literature to develop an econometric methodology which: i) finds groups of variables which have the same number of breaks; and ii) determines the nature of the break process within each group. We present an application involving a five-variate steady-state VAR.

Suggested Citation

Chan, Joshua C. C. and Koop, Gary, Modelling Breaks and Clusters in the Steady States of Macroeconomic Variables (February 2012). Available at SSRN: https://ssrn.com/abstract=2010260 or http://dx.doi.org/10.2139/ssrn.2010260

Joshua C. C. Chan (Contact Author)

University of Technology Sydney (UTS) - UTS Business School ( email )

Sydney
Australia

Purdue University

West Lafayette, IN 47907-1310
United States

Gary Koop

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

100 Cathedral Street
Glasgow G4 0LN
United Kingdom

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