A Joint Chow Test for Structural Instability
AbstractThe classical Chow (1960) test for structural instability requires strictly exogenous regressors and a break-point specified 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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Date of creation: 25 Jun 2012
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