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Power properties of the CUSUM and CUSUMSQ tests for parameter instability

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  • Paul Turner

Abstract

This article investigates the power of CUSUM and CUSUMSQ tests for parameter stability and demonstrates that this depends on the nature of the structural change taking place. If the break is in the intercept of the regression equation then the CUSUM test has higher power. However, if the structural change involves a slope coefficient or the variance of the error term, then the CUSUMSQ test has higher power. This may help to explain why the two tests often produce contradictory findings.

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  • Paul Turner, 2010. "Power properties of the CUSUM and CUSUMSQ tests for parameter instability," Applied Economics Letters, Taylor & Francis Journals, vol. 17(11), pages 1049-1053.
    • Handle: RePEc:taf:apeclt:v:17:y:2010:i:11:p:1049-1053
    DOI: 10.1080/00036840902817474
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    8. Lorna Katusiime, 2021. "Mobile Money Use: The Impact of Macroeconomic Policy and Regulation," Economies, MDPI, vol. 9(2), pages 1-19, April.
    9. Vanessa Berenguer-Rico & Bent Nielsen, 2015. "Cumulated sum of squares statistics for non-linear and non-stationary regressions," Economics Papers 2015-W09, Economics Group, Nuffield College, University of Oxford.
    10. Muhamad, Suriyani & Che Sulaiman, Nor Fatimah & Saputra, Jumadil, 2018. "The Role of Human Capital and Innovation Capacity on Economic Growth in ASEAN-3," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 52(1), pages 257-268.
    11. Phong B. Dao, 2021. "A CUSUM-Based Approach for Condition Monitoring and Fault Diagnosis of Wind Turbines," Energies, MDPI, vol. 14(11), pages 1-19, June.
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    13. Liu, Li & Yu, Deng, 2023. "Does volatility in natural resources commodity prices and economic performance matter for RCEP economies?," Resources Policy, Elsevier, vol. 80(C).

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