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Testing Jointly for Structural Changes in the Error Variance and Coefficients of a Linear Regression Model

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Author Info
Pierre Perron () (Boston University)
Jing Zhou () (BlackRock, Inc.)

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Abstract

We provide a comprehensive treatment of the problem of testing jointly for structural change in both the regression coefficients and the variance of the errors in a single equation regression involving stationary regressors. Our framework is quite general in that we allow for general mixing-type regressors and the assumptions imposed on the errors are quite mild. The errors’ distribution can be non-normal and conditional heteroskedasticity is permissable. Extensions to the case with serially correlated errors are also treated. We provide the required tools for addressing the following testing problems, among others: a) testing for given numbers of changes in regression coefficients and variance of the errors; b) testing for some unknown number of changes less than some pre-specified maximum; c) testing for changes in variance (regression coefficients) allowing for a given number of changes in regression coefficients (variance); and d) estimating the number of changes present. These testing problems are important for practical applications as witnessed by recent interests in macroeconomics and finance for which documenting structural change in the variability of shocks to simple autoregressions or vector autoregressive models has been a concern.

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Publisher Info
Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number wp2008-011.

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Length: 35
Date of creation: Jul 2008
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Handle: RePEc:bos:wpaper:wp2008-011

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Related research
Keywords: Change-point; Variance shift; Conditional heteroskedasticity; Likelihood ratio tests;

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This paper has been announced in the following NEP Reports: 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. Jushan Bai, 1997. "Estimation Of A Change Point In Multiple Regression Models," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 551-563, November. [Downloadable!] (restricted)
  2. James H. Stock & Mark W. Watson, 2002. "Has the Business Cycle Changed and Why?," NBER Working Papers 9127, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Andrews, Donald W K, 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, Econometric Society, vol. 59(3), pages 817-58, May. [Downloadable!] (restricted)
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  4. Perron, Pierre & Qu, Zhongjun, 2006. "Estimating restricted structural change models," Journal of Econometrics, Elsevier, vol. 134(2), pages 373-399, October. [Downloadable!] (restricted)
  5. Pierre Perron & Yohei Yamamoto, 2008. "Estimating and Testing Multiple Structural Changes in Models with Endogenous Regressors," Boston University - Department of Economics - Working Papers Series wp2008-017, Boston University - Department of Economics. [Downloadable!]
  6. Hansen, Bruce E., 2000. "Testing for structural change in conditional models," Journal of Econometrics, Elsevier, vol. 97(1), pages 93-115, July. [Downloadable!] (restricted)
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  7. Mohitosh Kejriwal & Pierre Perron, 2006. "Testing for Multiple Structural Changes in Cointegrated Regression Models," Boston University - Department of Economics - Working Papers Series WP2006-051, Boston University - Department of Economics. [Downloadable!]
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  8. Jean-Yves Pitarakis, 2004. "Least squares estimation and tests of breaks in mean and variance under misspecification," Econometrics Journal, Royal Economic Society, vol. 7(1), pages 32-54, 06. [Downloadable!] (restricted)
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  9. Bai, Jushan & Lumsdaine, Robin L & Stock, James H, 1998. "Testing for and Dating Common Breaks in Multivariate Time Series," Review of Economic Studies, Blackwell Publishing, vol. 65(3), pages 395-432, July. [Downloadable!] (restricted)
  10. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
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  11. 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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  12. Bai, Jushan, 1999. "Likelihood ratio tests for multiple structural changes," Journal of Econometrics, Elsevier, vol. 91(2), pages 299-323, August. [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. Jing Zhou & Pierre Perron, 2008. "Testing for Breaks in Coefficients and Error Variance: Simulations and Applications," Boston University - Department of Economics - Working Papers Series wp2008-010, Boston University - Department of Economics. [Downloadable!]
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