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Optimally Testing General Breaking Processes in Linear Time Series Models

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Author Info
Graham Elliott (University of California, San Diego)
Ulrich Mueller (University of St. Gallen)

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Abstract

There are a large number of tests for instability or breaks in coefficients in regression models designed for different possible departures from a stable regression. We make two contributions to this literature. First, we provide conditions under which optimal tests are asymptotically equivalent. Our conditions allow for models with many or relatively few breaks, clustered breaks, regularly occurring breaks or smooth transitions to changes in the regression coefficients. Thus we show nothing is gained asymptotically by knowing the exact breaking process. Second, we provide a statistic that is simple to compute, avoids any need for searching over high dimensions when there are many breaks, is valid for a wide range of data generating processes and has high power for many alternative

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Paper provided by Department of Economics, UC San Diego in its series University of California at San Diego, Economics Working Paper Series with number 2003-07.

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Date of creation: 29 Sep 2004
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Handle: RePEc:cdl:ucsdec:2003-07

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Related research
Keywords: optimal tests; parameter instability; Breaks tests.;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  2. Engle, Robert F. & Hendry, David F., 1993. "Testing superexogeneity and invariance in regression models," Journal of Econometrics, Elsevier, vol. 56(1-2), pages 119-139, March. [Downloadable!] (restricted)
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  3. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules And Macroeconomic Stability: Evidence And Some Theory," The Quarterly Journal of Economics, MIT Press, vol. 115(1), pages 147-180, February. [Downloadable!] (restricted)
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  4. Andrews, Donald W K & Ploberger, Werner, 1994. "Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative," Econometrica, Econometric Society, vol. 62(6), pages 1383-1414, November. [Downloadable!] (restricted)
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  5. Andrews, Donald W K, 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, Econometric Society, vol. 59(3), pages 817-58, May. [Downloadable!] (restricted)
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  6. Hackl, P & Westlund, A H, 1989. "Statistical Analysis of "Structural Change": An Annotated Bibliography," Empirical Economics, Springer, vol. 14(2), pages 167-92.
  7. Stock, James H & Watson, Mark W, 1996. "Evidence on Structural Instability in Macroeconomic Time Series Relations," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(1), pages 11-30, January.
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  8. Jesper Linde, 2001. "Testing for the Lucas Critique: A Quantitative Investigation," American Economic Review, American Economic Association, vol. 91(4), pages 986-1005, September. [Downloadable!] (restricted)
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  9. Shively, Thomas S., 1988. "An analysis of tests for regression coefficient stability," Journal of Econometrics, Elsevier, vol. 39(3), pages 367-386, November. [Downloadable!] (restricted)
  10. Ploberger, Werner & Kramer, Walter & Kontrus, Karl, 1989. "A new test for structural stability in the linear regression model," Journal of Econometrics, Elsevier, vol. 40(2), pages 307-318, February. [Downloadable!] (restricted)
  11. Hansen, Bruce E., 2000. "Testing for structural change in conditional models," Journal of Econometrics, Elsevier, vol. 97(1), pages 93-115, July. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Allan Timmermann & M. Hashem Pesaran, 2003. "How Costly is it to Ignore Breaks when Forecasting the Direction of a Time Series?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  2. Raffaella Giacomini & Barbara Rossi, 2006. "Detecting and predicting forecast breakdowns," Working Paper Series 638, European Central Bank. [Downloadable!]
    Other versions:
  3. Linda S. Goldberg & Michael W. Klein, 2005. "Establishing credibility: evolving perceptions of the European Central Bank," Staff Reports 231, Federal Reserve Bank of New York. [Downloadable!]
    Other versions:
  4. Gary M. Koop & Simon M. Potter, 2004. "Prior elicitation in multiple change-point models," Staff Reports 197, Federal Reserve Bank of New York. [Downloadable!]
    Other versions:
  5. Ted Juhl, 2004. "A nonparametric adjustment for tests of changing mean," Economics Bulletin, Economics Bulletin, vol. 3(34), pages 1-11. [Downloadable!]
  6. Giordani, Paolo & Kohn, Robert, 2006. "Efficient Bayesian Inference for Multiple Change-Point and Mixture Innovation Models," Working Paper Series 196, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
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  7. Allan Timmermann & M. Hashem Pesaran, 2003. "Small Sample Properties of Forecasts from Autoregressive Models under Structural Breaks," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  8. Gary M. Koop & Simon M. Potter, 2004. "Forecasting and estimating multiple change-point models with an unknown number of change points," Staff Reports 196, Federal Reserve Bank of New York. [Downloadable!]
    Other versions:
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