Monitoring Structural Change

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Monitoring Structural Change

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Chu, Chia-Shang James
Stinchcombe, Maxwell
White, Halbert

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Halbert White

Abstract

Contemporary tests for structural change are designed to detect a structural break within a given historical data set of fixed size. Due to the law of the iterated logarithm, these one-shot tests cannot be applied to monitor out-of-sample stability each time new data arrive. The authors propose and analyze two real-time monitoring procedures with controlled size asymptotically: the fluctuation and CUSUM monitoring procedures. Simulation results show that the proposed monitoring procedures indeed have controlled asymptotic size and that detection timing depends on the magnitude of parameter change, the signal to noise ratio, and the location of the out-of-sample break point. Copyright 1996 by The Econometric Society.

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Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 64 (1996)
Issue (Month): 5 (September)
Pages: 1045-65
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Handle: RePEc:ecm:emetrp:v:64:y:1996:i:5:p:1045-65

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