Bayesian analysis of a linear model involving structural changes in either regression parameters or disturbances precision

ABSTRACT

The present paper considers the Bayesian analysis of a linear regression model involving structural change, which may occur either due to shift in disturbances precision or due to shift in regression parameters. The posterior density for the regression parameter has been derived and posterior odds ratio for testing the hypothesis that structural change is due to shift in disturbances precision against the alternative that the change is due to shift in regression parameters has been obtained. The findings of a numerical simulation have been presented. The proposed model has been applied to RBI data set on corporate sector.