Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 630: Bayesian simultaneous determination of structural breaks and lag lengths

Brigitta Hultblad () and Sune Karlsson ()
Additional contact information
Brigitta Hultblad: Dept. of Economic Statistics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden
Sune Karlsson: Dept. of Economics, Statistics and Informatics, Postal: Örebro University, ESI, SE-701 82 Örebro, Sweden

Abstract: The detection of structural change and determination of lag lengths are long-standing issues in time series analysis. This paper demonstrates how these can be successfully married in a Bayesian analysis. By taking account of the inherent uncertainty about the lag length when deciding on the number of structural breaks and vice versa we avoid some common pitfalls and are able to draw more robust conclusions. The approach is illustrated using both real and simulated data.

Keywords: Regime shifts; Model uncertainty; Model averaging; Markov chain Monte Carlo; Real interest rate

JEL-codes: C11; C15; C22; C51

20 pages, June 8, 2006

Full text files

hastef0630.rev.pdf  Full text
hastef0630.sim.pdf  Simulation results

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