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A Bayesian Analysis of Unit Roots and Structural Breaks in the Level and the Error Variance of Autoregressive Models

Author

Listed:
  • Loukia Meligkotsidou

    (Lancaster University)

  • Elias Tzavalis

    (Queen Mary, University of London)

  • Ioannis D. Vrontos

    (Athens University of Economics and Business)

Abstract

In this paper, a Bayesian approach is suggested to compare unit root models with stationary models when both the level and the error variance are subject to structural changes (known as breaks) of an unknown date. The paper utilizes analytic and Monte Carlo integration techniques for calculating the marginal likelihood of the models under consideration, in order to compute the posterior model probabilities. The performance of the method is assessed by simulation experiments. Some empirical applications of the method are conducted with the aim to investigate if it can detect structural breaks in financial series, with changes in the error variance.

Suggested Citation

  • Loukia Meligkotsidou & Elias Tzavalis & Ioannis D. Vrontos, 2004. "A Bayesian Analysis of Unit Roots and Structural Breaks in the Level and the Error Variance of Autoregressive Models," Working Papers 514, Queen Mary University of London, School of Economics and Finance.
    • Handle: RePEc:qmw:qmwecw:514
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    File URL: https://www.qmul.ac.uk/sef/media/econ/research/workingpapers/2004/items/wp514.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Bayesian inference; Model comparison; Autoregressive models; Unit roots; Structural breaks;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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