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

Published online by Cambridge University Press:  17 August 2016

Michel Lubrano
Michel Lubrano*
Affiliation:
GREQAM-CNRS
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Summary

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.

Résumé

Résumé

Ce papier considère un problème particulier de séries temporelles non linéaires qui consiste à tester la cointégration dans un cadre Bayé-sien quand il y a une rupture dans la relation de long terme. On y montre qu’une linéarisation partielle de la fonction de vraisemblance résoud bon nombre de questions embarassantes, en particulier d’identification et de restriction de facteur commun qui sont originellement contenues dans le modèle. Une généralisation de l’c priori de Jeffreys est calculée pour le paramètre dynamique qui commande la cointégration. La procédure est appliquée à un problème empirique qui a été longuement débattu en France et qui concerne la politique de régulation salariale mise en place au début des années quatre vingt.

Keywords

E24C11C22E24C11C22
Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 61 , Issue 4 , 1995 , pp. 479 - 507
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1995 

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Footnotes

(*)

A first version of this paper was written while I was visiting the UCSD department of Economics and financed by a CNRS grant. Both supports are gratefully acknowledged. I benefited from useful comments by Clive Granger on the first version of the paper. Some of the ideas exposed here resulted from previous very active discussions with Luc Bauwens and David de la Croix. Referee reports were very useful in amending the present version of the paper. Of course all possible remaining errors are solely mine.

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