Forecasting and estimating multiple change-point models with an unknown number of change points

Gary Koop and Simon Potter

No 196, Staff Reports from Federal Reserve Bank of New York

Abstract: This paper develops a new approach to change-point modeling that allows for an unknown number of change points in the observed sample. Our model assumes that regime durations have a Poisson distribution. The model approximately nests the two most common approaches: the time-varying parameter model with a change point every period and the change-point model with a small number of regimes. We focus on the construction of reasonable hierarchical priors both for regime durations and for the parameters that characterize each regime. A Markov Chain Monte Carlo posterior sampler is constructed to estimate a change-point model for conditional means and variances. We find that our techniques work well in an empirical exercise involving U.S. inflation and GDP growth. Empirical results suggest that the number of change points is larger than previously estimated in these series and the implied model is similar to a time-varying parameter model with stochastic volatility.

Keywords: time series analysis; Econometric models (search for similar items in EconPapers)
Date: 2004
New Economics Papers: this item is included in nep-ets
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Citations: View citations in EconPapers (8)

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Working Paper: Forecasting and Estimating Multiple Change-point Models with an Unknown Number of Change-points (2004)
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