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Monitoring structural change in dynamic econometric models

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Author Info
Kurt Hornik (Institut für Statistik und Mathematik, Wirtschaftsuniversität Wien, Austria)
Friedrich Leisch (Institut für Statistik & Wahrscheinlichkeitstheorie, Technische Universität Wien, Austria)
Christian Kleiber (Institut für Wirtschafts- und Sozialstatistik, Universität Dortmund, Germany)
Achim Zeileis (Institut für Statistik und Mathematik, Wirtschaftsuniversität Wien, Austria)

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Abstract

The classical approach to testing for structural change employs retrospective tests using a historical data set of a given length. Here we consider a wide array of fluctuation-type tests in a monitoring situation-given a history period for which a regression relationship is known to be stable, we test whether incoming data are consistent with the previously established relationship. Procedures based on estimates of the regression coefficients are extended in three directions: we introduce (a) procedures based on OLS residuals, (b) rescaled statistics and (c) alternative asymptotic boundaries. Compared to the existing tests our extensions offer ease of computation, improved size in finite samples for dynamic models and better power against certain alternatives, respectively. We apply our methods to three data sets, German M1 money demand, US labour productivity and S&P 500 stock returns. Copyright © 2005 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/jae.776
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File URL: http://qed.econ.queensu.ca:80/jae/2005-v20.1/
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Publisher Info
Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 20 (2005)
Issue (Month): 1 ()
Pages: 99-121
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Handle: RePEc:jae:japmet:v:20:y:2005:i:1:p:99-121

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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.:

  1. 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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  2. Kuan, Chung-Ming & Chen, Mei-Yuan, 1994. "Implementing the fluctuation and moving-estimates tests in dynamic econometric models," Economics Letters, Elsevier, vol. 44(3), pages 235-239. [Downloadable!] (restricted)
  3. Leisch, Friedrich & Hornik, Kurt & Kuan, Chung-Ming, 2000. "Monitoring Structural Changes With The Generalized Fluctuation Test," Econometric Theory, Cambridge University Press, vol. 16(06), pages 835-854, December. [Downloadable!]
  4. Chu, Chia-Shang James & Hornik, Kurt & Kuan, Chung-Ming, 1995. "The Moving-Estimates Test for Parameter Stability," Econometric Theory, Cambridge University Press, vol. 11(04), pages 699-720, August. [Downloadable!]
  5. Ploberger, Werner & Kramer, Walter, 1992. "The CUSUM Test with OLS Residuals," Econometrica, Econometric Society, vol. 60(2), pages 271-85, March. [Downloadable!] (restricted)
  6. Jeff Racine & Rob Hyndman, 2002. "Using R to teach econometrics," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 17(2), pages 175-189. [Downloadable!]
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  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. repec:cup:etheor:v:11:y:1995:i:4:p:699-720 is not listed on IDEAS
  9. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-56, July. [Downloadable!] (restricted)
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Cited by:
(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. Stanislav Anatolyev & Grigory Kosenok, 2008. "Sequential Testing with Uniformly Distributed Size," Working Papers w0123, Center for Economic and Financial Research (CEFIR). [Downloadable!]
  2. Stanislav Anatolyev, 2006. "Nonparametric retrospection and monitoring of predictability of financial returns," Working Papers w0071, Center for Economic and Financial Research (CEFIR). [Downloadable!]
    Other versions:
  3. Elena Andreou & Eric Ghysels, 2004. "Monitoring for Disruptions in Financial Markets," CIRANO Working Papers 2004s-26, CIRANO. [Downloadable!]
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