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

Koop, Gary and Potter, Simon M. (2001) Are apparent findings of nonlinearity due to structural instability in economic time series? Econometrics Journal, 4 (1). pp. 37-55. ISSN 1368-4221 (https://doi.org/10.1111/1368-423X.00055)

[thumbnail of strathprints006941]
Preview
 Text. Filename: strathprints006941.pdf
Accepted Author Manuscript
Download (205kB)| 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.

ORCID iDs

Koop, Gary ORCID logoORCID: https://orcid.org/0000-0002-6091-378X and Potter, Simon M.;
CORE (COnnecting REpositories)