Arbeitspapier

Trend Estimation with Penalized Splines as Mixed Models for Series with Structural Breaks

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On purpose to extract trend and cycle from a time series many competing techniques have been developed. The probably most prevalent is the Hodrick Prescott filter. However this filter suffers from diverse shortcomings, especially the subjective choice of its penalization parameter. To this point penalized splines within a mixed model framework offer the advantage of a data driven derivation of the penalization parameter. Nevertheless the Hodrick-Prescott filter as well as penalized splines fail to estimate trend and cycle when one deals with times series that contain structural breaks. This paper extends the technique of splines within a mixed model framework to account for break points in the data. It explains how penalized splines as mixed models can be used to avoid distortions caused by breaks and finally provides an empirical application to German data which exhibit structural breaks due to the reunification in 1990.

Language
Englisch

Bibliographic citation
Series: Munich Discussion Paper ; No. 2014-2

Classification
Wirtschaft
Single Equation Models; Single Variables: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
Model Evaluation, Validation, and Selection
Subject
penalized splines
mixed models
structural breaks
trends
flexible penalization

Event
Geistige Schöpfung
(who)
Blöchl, Andreas
Event
Veröffentlichung
(who)
Ludwig-Maximilians-Universität München, Volkswirtschaftliche Fakultät
(where)
München
(when)
2014

DOI
doi:10.5282/ubm/epub.18446
Handle
URN
urn:nbn:de:bvb:19-epub-18446-2
Last update
10.03.2025, 11:42 AM CET

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Object type

  • Arbeitspapier

Associated

  • Blöchl, Andreas
  • Ludwig-Maximilians-Universität München, Volkswirtschaftliche Fakultät

Time of origin

  • 2014

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