Modeling pairwise convergence: A Bayesian approach with an application to Greek inflation
Veni Arakelian and
Economics Letters, 2008, vol. 99, issue 2, 340-344
We propose a methodology for modeling convergence in the presence of transitional dynamics. We explore the dynamic behavior of the difference between two series by allowing the parameters to change across time without imposing any formulation restrictions, using a threshold approach. We adopt an MCMC algorithm to identify the number and the location of the breaks.
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