We address the issue of time varying persistence of shocks to macroeconomic time series variables by proposing a new and parsimonious time series model. Our model assumes that this time varying persistence depends on a linear combination of lagged explanatory variables, where this combination...

To enable answering the question in the title, we introduce a bivariate censored latent effects autoregression, and discuss representation, parameter estimation, diagnostics and inference. We show that this bivariate nonlinear model is very useful for examining common nonlinearity. We apply the...