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Optimal Predictive Tests and a Simulation Study

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Abstract

This paper shows that predictive tests for structural change with unknown breakpoint are optimal tests such as defined by Sowell (1996a, 1996b). Optimal predictive tests for parameter instability and overidentifying restrictions stability are proposed. An optimal predictive test for parameter instability of a subset of moment conditions with unknown breakpoint is also introduced. The finite sample properties of LM, Wald, LR-type and predictive tests for parameters instability are studied via a simulation study. Dans cet article, nous montrons que les tests de type prédictif pour détecter des changements structurels sont des tests optimaux selon la définition de Sowell (1996a, 1996b). Des tests prédictifs optimaux sont proposés pour détecter l'instabilité des paramètres et des conditions de suridentification. Un test optimal de stabilité d'un sous-emsemble des conditions de moments est également introduit. Une étude de Monte-Carlo compare le comportement en petit échantillon des tests Wald LR, LM et prédictif.

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File URL: http://www.unites.uqam.ca/eco/CREFE/cahiers/cah142.ps
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File URL: http://www.unites.uqam.ca/eco/CREFE/cahiers/cah142.pdf
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Bibliographic Info

Paper provided by CREFE, Université du Québec à Montréal in its series Cahiers de recherche CREFE / CREFE Working Papers with number 142.

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Length: 28 pages
Date of creation: Oct 2001
Date of revision:
Handle: RePEc:cre:crefwp:142

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Keywords: Generalized method of moments; structural stability testing; optimal tests;

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  1. Fallaw Sowell, . "Tests for Violations of Moment Conditions," GSIA Working Papers 21, Carnegie Mellon University, Tepper School of Business.
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