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Estimating and Testing Structural Changes in Multivariate Regressions

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Author Info
Zhongjun Qu
Pierre Perron

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Abstract

This paper considers issues related to estimation, inference, and computation with multiple structural changes that occur at unknown dates in a system of equations. Changes can occur in the regression coefficients and/or the covariance matrix of the errors. We also allow arbitrary restrictions on these parameters, which permits the analysis of partial structural change models, common breaks that occur in all equations, breaks that occur in a subset of equations, and so forth. The method of estimation is quasi-maximum likelihood based on Normal errors. The limiting distributions are obtained under more general assumptions than previous studies. For testing, we propose likelihood ratio type statistics to test the null hypothesis of no structural change and to select the number of changes. Structural change tests with restrictions on the parameters can be constructed to achieve higher power when prior information is present. For computation, an algorithm for an efficient procedure is proposed to construct the estimates and test statistics. We also introduce a novel locally ordered breaks model, which allows the breaks in different equations to be related yet not occurring at the same dates. Copyright The Econometric Society 2007.

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File URL: http://hdl.handle.net/10.1111/j.1468-0262.2006.00754.x
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Publisher Info
Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 75 (2007)
Issue (Month): 2 (03)
Pages: 459-502
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Handle: RePEc:ecm:emetrp:v:75:y:2007:i:2:p:459-502

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  1. Meenagh, David & Minford, Patrick & Nowell, Eric & Sofat, Prakriti & Srinivasan, Naveen, 2007. "Are the facts of UK inflation persistence to be explained by nominal rigidity or changes in monetary regime?," Cardiff Economics Working Papers E2007/21, Cardiff University, Cardiff Business School, Economics Section. [Downloadable!]
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  2. Bertrand Candelon & Gianluca Cubadda, 2006. "Testing for Parameter Stability in Dynamic Models Across Frequencies," CEIS Research Paper 82, Tor Vergata University, CEIS. [Downloadable!]
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  3. Ai Deng & Pierre Perron, 2005. "The Limit Distribution of the CUSUM of Square Test Under Genreal MIxing Conditions," Boston University - Department of Economics - Working Papers Series WP2005-046, Boston University - Department of Economics. [Downloadable!]
  4. Gillman, Max & Nakov, Anton, 2007. "Monetary Effects on Oil and Gold Prices," Cardiff Economics Working Papers E2008/15, Cardiff University, Cardiff Business School, Economics Section. [Downloadable!]
  5. Viv Hall & John McDermott, 2008. "An Unobserved Components Common Cycle For Australia? Implications For A Common Currency," CAMA Working Papers 2008-11, Australian National University, Centre for Applied Macroeconomic Analysis. [Downloadable!]
  6. Meenagh, David & Minford, Patrick & Nowell, Eric & Sofat, Prakriti & Srinivasan, Naveen, 2008. "Can the Facts of UK Inflation Persistence be Explained by Nominal Rigidity?," Cardiff Economics Working Papers E2008/7, Cardiff University, Cardiff Business School, Economics Section, revised Jul 2008. [Downloadable!]
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  7. Hall, Alastair R. & Han, Sanggohn & Boldea, Otilia, 2008. "Inference regarding multiple structural changes in linear models estimated via two stage least squares," MPRA Paper 9251, University Library of Munich, Germany, revised 20 Jun 2008. [Downloadable!]
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