Comparison of Two Alternative Approaches to Modeling Level Shifts in the Presence of Outliers

Prasad V. Bidarkota ()

No 307, Working Papers from Florida International University, Department of Economics

Abstract: We study alternative models for capturing abrupt structural changes (level shifts) in a times series. The problem is confounded by the presence of transient outliers. We compare the performance of non-Gaussian time-varying parameter models and multiprocess mixture models within a Monte Carlo experimental setup. Our findings suggest that once we incorporate shocks with thick-tailed probability distributions, the superiority of the multiprocess mixture models over the time-varying parameter models, reported in an earlier study, disappears. The behavior of the two models, both in adapting to level shifts and in reacting to transient outliers, is very similar.

Keywords: time-varying parameter (TVP) models; non-Gaussian state space models; multiprocess mixture models; level shifts; outliers (search for similar items in EconPapers)
JEL-codes: C22 E31 C53 (search for similar items in EconPapers)
Date: 2003-07
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Published in Communications in Statistics: Simulation and Computation, 33(3):661-671, (2004).

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http://www.fiu.edu/orgs/economics/wp2003/03-07.pdf First version, 2003 (application/pdf)

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Persistent link: http://EconPapers.repec.org/RePEc:fiu:wpaper:0307

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