Breaks or long memory behaviour : An empirical investigation
AbstractAre structural breaks models true switching models or long memory processes ? The answer to this question remain ambiguous. A lot of papers, in recent years, have dealt with this problem. For instance, Diebold and Inoue (2001) and Granger and Hyung (2004) show, under specific conditions, that switching models and long memory processes can be easily confused. In this paper, using several generating models like the mean-plus-noise model, the STOchastic Permanent BREAK model, the Markov switching model, the TAR model, the sign model and the Structural CHange model (SCH) and several estimation techiques like the GPH technique, the Exact Local Whittle (ELW) and the Wavelet methods, we show that, if the answer is quite simple in some cases, it can be mitigate in other cases. Using French and American inflation rates, we show that these series cannot be characterized by the same class of models. The main result of this study suggests that estimating the long memory parameter without taking account existence of breaks in the data sets may lead to misspecification and to overestimate the true parameter.
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Bibliographic InfoPaper provided by Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne in its series Documents de travail du Centre d'Economie de la Sorbonne with number 09022.
Length: 17 pages
Date of creation: Apr 2009
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Structural breaks models; Spurious long memory behavior; inflation series.;
Find related papers by JEL classification:
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-05-23 (All new papers)
- NEP-ECM-2009-05-23 (Econometrics)
- NEP-ETS-2009-05-23 (Econometric Time Series)
- NEP-ORE-2009-05-23 (Operations Research)
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