Testing for Structural Breaks in Nonlinear Dynamic Models Using Artificial Neural Network Approximations
AbstractIn this paper we suggest a number of statistical tests based on neural network models, that are designed to be powerful against structural breaks in otherwise stationary time series processes while allowing for a variety of nonlinear specifications for the dynamic model underlying them. It is clear that in the presence of nonlinearity standard tests of structural breaks for linear models may not have the expected performance under the null hypothesis of no breaks because the model is misspecified. We therefore proceed by approximating the conditional expectation of the dependent variable through a neural network. Then, the residual from this approximation is tested using standard residual based structural break tests. We investigate the asymptoptic behaviour of residual based structural break tests in nonlinear regression models. Monte Carlo evidence suggests that the new tests are powerful against a variety of structural breaks while allowing for stationary nonlinearities.
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Bibliographic InfoPaper provided by Queen Mary, University of London, School of Economics and Finance in its series Working Papers with number 470.
Date of creation: Nov 2002
Date of revision:
Nonlinearity; Structural breaks; Neural networks;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-12-02 (All new papers)
- NEP-CMP-2002-12-02 (Computational Economics)
- NEP-ECM-2002-12-10 (Econometrics)
- NEP-ETS-2002-12-02 (Econometric Time Series)
- NEP-RMG-2002-12-02 (Risk Management)
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