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Inference regarding multiple structural changes in linear models estimated via two stage least squares

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  • Hall, Alastair R.
  • Han, Sanggohn
  • Boldea, Otilia

Abstract

In this paper, we extend Bai and Perron’s (1998, Econometrica, p.47-78) framework for multiple break testing to linear models estimated via Two Stage Least Squares (2SLS). Within our framework, the break points are estimated simultaneously with the regression parameters via minimization of the residual sum of squares on the second step of the 2SLS estimation. We establish the consistency of the resulting estimated break point fractions. We show that various F-statistics for structural instability based on the 2SLS estimator have the same limiting distribution as the analogous statistics for OLS considered by Bai and Perron (1998). This allows us to extend Bai and Perron’s (1998) sequential procedure for selecting the number of break points to the 2SLS setting. Our methods also allow for structural instability in the reduced form that has been identified a priori using data-based methods. As an empirical illustration, our methods are used to assess the stability of the New Keynesian Phillips curve.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 9251.

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Date of creation: 20 Jun 2008
Date of revision: 20 Jun 2008
Handle: RePEc:pra:mprapa:9251

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Keywords: unknown break points; structural change; instrumental variables; endogenous regressors; structural stability tests; new Keynesian Phillips curve;

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References

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  1. Ghysels, Eric & Hall, Alastair, 1990. "A Test for Structural Stability of Euler Conditions Parameters Estimated via the Generalized Method of Moments Estimator," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(2), pages 355-64, May.
  2. 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.
  3. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
  4. Zhongjun Qu & Pierre Perron, 2007. "Estimating and Testing Structural Changes in Multivariate Regressions," Econometrica, Econometric Society, vol. 75(2), pages 459-502, 03.
  5. Hall, Alastair R., 2004. "Generalized Method of Moments," OUP Catalogue, Oxford University Press, number 9780198775201, September.
  6. Andrews, Donald W. K. & Fair, Ray C., 1987. "Inference in Econometric Models with Structural Change," Working Papers 636, California Institute of Technology, Division of the Humanities and Social Sciences.
  7. Sowell, Fallaw, 1996. "Optimal Tests for Parameter Instability in the Generalized Method of Moments Framework," Econometrica, Econometric Society, vol. 64(5), pages 1085-1107, September.
  8. Bhattacharya, P.K., 1987. "Maximum likelihood estimation of a change-point in the distribution of independent random variables: General multiparameter case," Journal of Multivariate Analysis, Elsevier, vol. 23(2), pages 183-208, December.
  9. Hall, Alastair R & Sen, Amit, 1999. "Structural Stability Testing in Models Estimated by Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(3), pages 335-48, July.
  10. Perron, Pierre & Qu, Zhongjun, 2006. "Estimating restricted structural change models," Journal of Econometrics, Elsevier, vol. 134(2), pages 373-399, October.
  11. Jinyong Hahn & Atsushi Inoue, 2002. "A Monte Carlo Comparison Of Various Asymptotic Approximations To The Distribution Of Instrumental Variables Estimators," Econometric Reviews, Taylor & Francis Journals, vol. 21(3), pages 309-336.
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Cited by:
  1. Pierre Perron & Yohei Yamamoto, 2011. "Using OLS to Estimate and Test for Structural Changes in Models with Endogenous Regressors," Boston University - Department of Economics - Working Papers Series WP2011-053, Boston University - Department of Economics.
  2. Hall, Alastair R. & Han, Sanggohn & Boldea, Otilia, 2008. "Asymptotic Distribution Theory for Break Point Estimators in Models Estimated via 2SLS," MPRA Paper 9472, University Library of Munich, Germany.

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