Bootstrap Tests for Structural Breaks When the Regressors and Error Term are Nonstationary
AbstractThis paper considers tests for structural breaks in linear models when the regressors and the serially dependent error process are unstable. The set of models contains various economic circumstances such as the structural breaks in the regressors and/or the error variance, and a linear trend model with I(0)/I(1) error. We show that the existing heteroscedasticity robust tests and the fixed regressor bootstrap method of Hansen (2000) have severe size distortion problem even in the asymptotics. We suggest a method which combines the fixed regressor bootstrap and the sieve-wild bootstrap method to nonparametrically approximate the serially dependent unstable error process. The suggested method is shown to asymptotically replicates the true distribution of the existing tests under various circumstances. Monte Carlo experiments show significant improvements both in the size and the power properties. Once the size is controlled by the bootstrap, Wald type tests have better power properties relative to LM type tests.
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Bibliographic InfoPaper provided by University of Connecticut, Department of Economics in its series Working papers with number 2011-05.
Length: 44 pages
Date of creation: Mar 2011
Date of revision:
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Structural break; sieve bootstrap; fixed regressor bootstrap; robust test; break in linear trend;
Find related papers by JEL classification:
- C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-03-26 (All new papers)
- NEP-ECM-2011-03-26 (Econometrics)
- NEP-ETS-2011-03-26 (Econometric Time Series)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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