Multivariate methods for monitoring structural change
AbstractDetection of structural change is a critical empirical activity, but continuous 'monitoring' of time series for structural changes in real time raises well-known econometric issues. These have been explored in a univariate context. If multiple series co-break, as may be plausible, then it is possible that simultaneous examination of a multivariate set of data would help identify changes with higher probability or more rapidly than when series are examined on a case-by-case basis. Some asymptotic theory is developed for a maximum CUSUM detection test. Monte Carlo experiments suggest that there is an improvement in detection relative to a univariate detector over a wide range of experimental parameters, given a sufficiently large number of co-breaking series. The method is applied to UK RPI inflation in the period after 2001. A break is detected which would not have been picked up by univariate methods.
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Bibliographic InfoPaper provided by Bank of England in its series Bank of England working papers with number 369.
Length: 38 pages
Date of creation: 08 Jun 2009
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monitoring; structural change; panel; CUSUM; fluctuation test;
Other versions of this item:
- Jan J. J. Groen & George Kapetanios & Simon Price, 2013. "Multivariate Methods For Monitoring Structural Change," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 28(2), pages 250-274, 03.
- Jan J.J. Groen & George Kapetanios & Simon Price, 2010. "Multivariate Methods for Monitoring Structural Change," Working Papers 658, Queen Mary, University of London, School of Economics and Finance.
- C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
- C59 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Other
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-06-03 (All new papers)
- NEP-ECM-2009-06-03 (Econometrics)
- NEP-ETS-2009-06-03 (Econometric Time Series)
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