The paper investigates asymptotically efficient inference in general likelihood models with time varying parameters. Parameter path estimators and tests of parameter constancy are evaluated by their weighted average risk and weighted average power, respectively. The weight function is proportional to the distribution of a Gaussian process, and focusses on local parameter instabilities that cannot be detected with certainty even in the limit. It is shown that asymptotically, the sample information about the parameter path is efficiently summarized by a Gaussian pseudo model. This approximation leads to computationally convenient formulas for efficient path estimators and test statistics, and unifies the theory of stability testing and parameter path estimation.
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number
2260.
Find related papers by JEL classification: C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models
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