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Forecasting and estimating multiple change-point models with an unknown number of change points

Koop, G.M. and Potter, S. (2004) Forecasting and estimating multiple change-point models with an unknown number of change points. Working paper. University of Leicester.

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Abstract

This paper develops a new approach to change-point modeling that allows for an unknown number of change points in the observed sample. Our model assumes that regime durations have a Poisson distribution. The model approximately nests the two most common approaches: the time-varying parameter model with a change point every period and the change-point model with a small number of regimes. We focus on the construction of reasonable hierarchical priors both for regime durations and for the parameters that characterize each regime. A Markov Chain Monte Carlo posterior sampler is constructed to estimate a change-point model for conditional means and variances. We find that our techniques work well in an empirical exercise involving U.S. inflation and GDP growth. Empirical results suggest that the number of change points is larger than previously estimated in these series and the implied model is similar to a time-varying parameter model with stochastic volatility.

Item type: Monograph (Working paper)
ID code: 7745
Notes: Revised paper Review of Economic Studies, Vol.74, Issue 3, pp.763-789
Keywords: econometric models, time-series analysis, Bayesian, statsitcs, econometrics, economics, Markov chain, Monte Carlo, hierarchical prior, Economic Theory, Statistics
Subjects: Social Sciences > Economic Theory
Social Sciences > Statistics
Department: Strathclyde Business School > Economics
Depositing user: Strathprints Administrator
Date Deposited: 20 Mar 2009 11:52
Last modified: 22 May 2015 08:50
Related URLs:
URI: http://strathprints.strath.ac.uk/id/eprint/7745

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