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Modelling Structural Change in Money Demand Using a Fourier-Series Approximation

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Author Info

  • R. Becker
  • W. Enders
  • S. Hurn

Abstract

The paper develops a simple method that can be used to test for a time-varying intercept and to approximate its form. The test is solidly grounded in asymptotic theory and has good small-sample properties. The methodology is based on the fact that a Fourier approximation can capture the variation in any absolutely integrable function of time. As such, it is possible to use successive applications of the test to "back-out" the form of the time-varying intercept. We illustrate the methodology using an extended example concerning the demand for money.

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File URL: http://www.business.uts.edu.au/qfrc/research/research_papers/rp67.pdf
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Bibliographic Info

Paper provided by Quantitative Finance Research Centre, University of Technology, Sydney in its series Research Paper Series with number 67.

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Date of creation: 01 Dec 2001
Date of revision:
Handle: RePEc:uts:rpaper:67

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Related research

Keywords: structural break; fourier approximations; money demand;

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References

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  1. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  2. Donald W.K. Andrews & Werner Ploberger, 1992. "Optimal Tests When a Nuisance Parameter Is Present Only Under the Alternative," Cowles Foundation Discussion Papers 1015, Cowles Foundation for Research in Economics, Yale University.
  3. Chow, Gregory C., 1984. "Random and changing coefficient models," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 21, pages 1213-1245 Elsevier.
  4. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November.
  5. 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.
  6. Hansen, Bruce E, 1992. "Tests for Parameter Instability in Regressions with I(1) Processes," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 321-35, July.
  7. Farley, John U. & Hinich, Melvin & McGuire, Timothy W., 1975. "Some comparisons of tests for a shift in the slopes of a multivariate linear time series model," Journal of Econometrics, Elsevier, vol. 3(3), pages 297-318, August.
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Cited by:
  1. Pascalau, Razvan & Thomann, Christian & Gregoriou, Greg N., 2010. "Unconditional mean, Volatility and the Fourier-Garch representation," MPRA Paper 35932, University Library of Munich, Germany.

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