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Economic Education improves public knowledge about the Federal Reserve System, monetary policy implementation, and promoting financial stability through the Museum and programs for K-16 students and educators, and the community.
Many modeling issues and policy debates in macroeconomics depend on whether macroeconomic times series are best characterized as linear or nonlinear. If departures from linearity exist, it is important to know whether these are endogenously generated (as in, for example, a threshold autoregressive model) or whether they merely reflect changing structure over time. We advocate a Bayesian approach and show how such an approach can be implemented in practice. An empirical exercise involving several macroeconomic time series shows that apparent findings of threshold-type nonlinearities could be due to structural instability.
For a published version of this report, see Gary Koop and Simon Potter, "Are Apparent Findings of Nonlinearity Due to Structural Instability in Economic Time Series?" Econometrics Journal 4, no. 1 (January 2001): 37-55.