Bayesian Tests for Co-Integration in the Case of Structural Breaks: An Application to the Analysis of Wage Moderation in France

Michel Lubrano

No 1995044, Discussion Papers (REL - Recherches Economiques de Louvain) from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: This paper considers a special non-linear time series problem, that of testing for co-integration in a Bayesian framework when there is a break in the co-integrating relationship. It is shown that a partial linearization of the likelihood function solves many puzzling questions, in particular identification and common factor restrictions which are originally imbedded in the model. A generalization of the Jeffreys' prior is derived for the dynamic parameter which monitors co-integration. The procedure is applied to a one time much debated question in France which concerns the wage regulation policy implemented at the beginning of the eighties.

JEL-codes: C11 C22 E24 (search for similar items in EconPapers)
Pages: 29
Date: 1995-12-01
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