Picture of a sphere with binary code

Making Strathclyde research discoverable to the world...

The Strathprints institutional repository is a digital archive of University of Strathclyde research outputs. It exposes Strathclyde's world leading Open Access research to many of the world's leading resource discovery tools, and from there onto the screens of researchers around the world.

Explore Strathclyde Open Access research content

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

Koop, G.M. and Potter, S. (2001) Are apparent findings of nonlinearity due to structural instability in economic time series? Econometrics Journal, 4 (1). pp. 37-55. ISSN 1368-4221

[img]
Preview
PDF (strathprints006941.pdf)
strathprints006941.pdf

Download (211kB) | Preview

Abstract

Many modelling 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, e.g., 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.