Dealing with Structural Breaks
AbstractThis chapter is concerned with methodological issues related to estimation, testing and computation in the context of structural changes in the linear models. A central theme of the review is the interplay between structural change and unit root and on methods to distinguish between the two. The topics covered are: methods related to estimation and inference about break dates for single equations with or without restrictions, with extensions to multi-equations systems where allowance is also made for changes in the variability of the shocks; tests for structural changes including tests for a single or multiple changes and tests valid with unit root or trending regressors, and tests for changes in the trend function of a series that can be integrated or trendstationary; testing for a unit root versus trend-stationarity in the presence of structural changes in the trend function; testing for cointegration in the presence of structural changes; and issues related to long memory and level shifts. Our focus is on the conceptual issues about the frameworks adopted and the assumptions imposed as they relate to potential applicability. We also highlight the potential problems that can occur with methods that are commonly used and recent work that has been done to overcome them.
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Bibliographic InfoPaper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2005-017.
Length: 92 pages
Date of creation: Apr 2005
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-03-18 (All new papers)
- NEP-ECM-2006-03-18 (Econometrics)
- NEP-ETS-2006-03-18 (Econometric Time Series)
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