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A Joint Chow Test for Structural Instability

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  • Bent Nielsen

    ()
    (Dept of Economics, University of Oxford)

  • Andrew Whitby

    ()
    (Dept of Economics, University of Oxford)

Abstract

The classical Chow (1960) test for structural instability requires strictly exogenous regressors and a break-point speci ed in advance. In this paper we consider two generalisations, the 1-step recursive Chow test (based on the sequence of studentized recursive residuals) and its supremum counterpart, which relax these requirements. We use results on strong consistency of regression estimators to show that the 1-step test is appropriate for stationary, unit root or explosive processes modelled in the autoregressive distributed lags (ADL) framework. We then use results in extreme value theory to develop a new supremum version of the test, suitable for formal testing of structural instability with an unknown break-point. The test assumes normality of errors, and is intended to be used in situations where this can either be assumed or established empirically.

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Bibliographic Info

Paper provided by Economics Group, Nuffield College, University of Oxford in its series Economics Papers with number 2012-W07.

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Length: 20 pages
Date of creation: 25 Jun 2012
Date of revision:
Handle: RePEc:nuf:econwp:1207

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Web page: http://www.nuff.ox.ac.uk/economics/

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  1. Bengt Assarsson & Claes Berg & Per Jansson, 2004. "Investment in Swedish manufacturing: Analysis and forecasts," Empirical Economics, Springer, Springer, vol. 29(2), pages 261-280, 05.
  2. Hendry, David F, 1986. "Using PC-GIVE in Econometrics Teaching," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 48(1), pages 87-98, February.
  3. E ric E ngler & B ent N ielsen, 2009. "The empirical process of autoregressive residuals," Econometrics Journal, Royal Economic Society, Royal Economic Society, vol. 12(2), pages 367-381, 07.
  4. Dufour, Jean-Marie, 1982. "Recursive stability analysis of linear regression relationships: An exploratory methodology," Journal of Econometrics, Elsevier, Elsevier, vol. 19(1), pages 31-76, May.
  5. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, Econometric Society, vol. 61(4), pages 821-56, July.
  6. Bent Nielsen, 2003. "Strong consistency results for least squares estimators in general vector autoregressions with deterministic terms," Economics Series Working Papers, University of Oxford, Department of Economics 2003-W23, University of Oxford, Department of Economics.
  7. Jouni Sohkanen & B. Nielsen, 2009. "Asymptotic behaviour of the CUSUM of squares test under stochastic and deterministic time trends," Economics Papers, Economics Group, Nuffield College, University of Oxford 2009-W09, Economics Group, Nuffield College, University of Oxford.
  8. Bauer, Dietmar, 2009. "Almost Sure Bounds On The Estimation Error For Ols Estimators When The Regressors Include Certain Mfi(1) Processes," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 25(02), pages 571-582, April.
  9. Johansen, S., 1999. "A Bartlett Correction Factor for Tests on the Cointegrating Relations," Economics Working Papers, European University Institute eco99/10, European University Institute.
  10. Kramer, Walter & Ploberger, Werner & Alt, Raimund, 1988. "Testing for Structural Change in Dynamic Models," Econometrica, Econometric Society, Econometric Society, vol. 56(6), pages 1355-69, November.
  11. Ploberger, Werner & Kramer, Walter, 1986. "On studentizing a test for structural change," Economics Letters, Elsevier, Elsevier, vol. 20(4), pages 341-344.
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