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The Information Content of Implied Probabilities to Detect Structural Change

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  • Alain Guay
  • Jean-François Lamarche

Abstract

This paper proposes Pearson-type statistics based on implies probabilities to detect structural change. The class of generalized empirical likelihood estimators (see Smith (1997)) assigns a set of probabilities to each observation such that moment conditions are satisfied. These restricted probabilities are called implied probabilities. Implied probabilities may also be constructed for the standard GMM (see Back and Brown (1993)). The proposed test statistics for structural change are based on the information content in these implied probabilities. We consider cases of structural change with unknown breakpoint which can occur in the parameters of interest or in the overidentifying restrictions used to estimate these parameters. The test statistics considered here have good size and power properties.

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Bibliographic Info

Paper provided by CIRPEE in its series Cahiers de recherche with number 0833.

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Date of creation: 2008
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Handle: RePEc:lvl:lacicr:0833

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Keywords: Generalized empirical likelihood; generalized method of moments; parameter instability; structural change;

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  1. 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.
  2. Back, Kerry & Brown, David P, 1993. "Implied Probabilities in GMM Estimators," Econometrica, Econometric Society, vol. 61(4), pages 971-75, July.
  3. Whitney Newey & Richard Smith, 2003. "Higher order properties of GMM and generalised empirical likelihood estimators," CeMMAP working papers CWP04/03, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
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  13. Alain Guay & Jean-Francois Lamarche, 2010. "Structural change tests for GEL criteria," Working Papers 1002, Brock University, Department of Economics.
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  15. Hall, Peter & Horowitz, Joel L, 1996. "Bootstrap Critical Values for Tests Based on Generalized-Method-of-Moments Estimators," Econometrica, Econometric Society, vol. 64(4), pages 891-916, July.
  16. Ghysels, Eric & Hall, Alastair, 1990. "Are consumption-based intertemporal capital asset pricing models structural?," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 121-139.
  17. Andrews, Donald W K & Monahan, J Christopher, 1992. "An Improved Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimator," Econometrica, Econometric Society, vol. 60(4), pages 953-66, July.
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