IDEAS home Printed from https://ideas.repec.org/p/zbw/esprep/172517.html
   My bibliography  Save this paper

Theory and Practice of Testing for a Single Structural Break in Stata

Author

Listed:
  • Majune, Socrates Kraido

Abstract

The major objective of this paper is to demonstrate, theoretically and empirically, the test of a single structural break/change. Failure to address a structural break can lead to forecasting errors and the general unreliability of a model. Three approaches of testing for structural change are discussed using data from Johnston et al. (1997, p.130) on Stata 14 software. The first approach assesses whether there is a structural break in parameters (slope and intercept) while the second and third assess whether there is a break in slope and intercept respectively. The Residual Sum of Squares (RSS) for the restricted and unrestricted models are established to necessitate the use of an F-test in making inferences. According to the first approach, a structural break exists at 5% level of significance. This result is confirmed by the Chow test. The second and third approaches establish that the structural break is from the intercept and not the slope. These results are also affirmed by the Chow test. Furthermore, all these results, from the first to the third approach, are confirmed by an alternative approach which relies on the knowledge that . Therefore, the dependent variable is not affected by the policy change on the explanatory variable but it is mainly affected by the basic unobserved qualitative characteristics of the two sub-periods. For further analysis, it is recommended that a unit root test be conducted using the Zivot-Andrews test. This test has been established as the panacea for the interplay between unit root and structural changes.

Suggested Citation

  • Majune, Socrates Kraido, 2018. "Theory and Practice of Testing for a Single Structural Break in Stata," EconStor Preprints 172517, ZBW - Leibniz Information Centre for Economics.
    • Handle: RePEc:zbw:esprep:172517
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/172517/3/Single%20Structural%20Break.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Zivot, Eric & Andrews, Donald W K, 2002. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 25-44, January.
    2. ., 1998. "Feminist Economic Methodology," Chapters, in: John B. Davis & D. W. Hands & Uskali Mäki (ed.), The Handbook of Economic Methodology, chapter 39, Edward Elgar Publishing.
    3. ., 1998. "Econometric Methodoology," Chapters, in: John B. Davis & D. W. Hands & Uskali Mäki (ed.), The Handbook of Economic Methodology, chapter 25, Edward Elgar Publishing.
    4. ., 1998. "Bayesian Econometric Methodology," Chapters, in: John B. Davis & D. W. Hands & Uskali Mäki (ed.), The Handbook of Economic Methodology, chapter 7, Edward Elgar Publishing.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gugiu, P. Cristian, 2015. "Hierarchy of evidence and appraisal of limitations (HEAL) grading system," Evaluation and Program Planning, Elsevier, vol. 48(C), pages 149-159.
    2. Fatemeh Bazzazan & Farnaz Ghashami & Mir Hosein Mousavi, 2017. "Effects of Targeting Energy Subsidies on Domestic Electricity Demand in Iran," International Journal of Energy Economics and Policy, Econjournals, vol. 7(2), pages 9-17.
    3. Yossi Hadar & David Pines, 2003. "On the Market Failure in a Dixit‐Stiglitz Setup with Two Trading Cities," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(4), pages 549-570, October.
    4. Berg, Pekka & Leinonen, Mikko & Leivo, Virpi & Pihlajamaa, Jussi, 2002. "Assessment of quality and maturity level of R&D," International Journal of Production Economics, Elsevier, vol. 78(1), pages 29-35, July.
    5. Kutuk, Yasin, 2022. "Inequality convergence: A world-systems theory approach," Structural Change and Economic Dynamics, Elsevier, vol. 63(C), pages 150-165.
    6. Lee, Chi-Chuan & Lee, Chien-Chiang & Ning, Shao-Lin, 2017. "Dynamic relationship of oil price shocks and country risks," Energy Economics, Elsevier, vol. 66(C), pages 571-581.
    7. Jason Allen & Robert Amano & David P. Byrne & Allan W. Gregory, 2009. "Canadian city housing prices and urban market segmentation," Canadian Journal of Economics, Canadian Economics Association, vol. 42(3), pages 1132-1149, August.
    8. Mariam Camarero & Juan Sapena & Cecilio Tamarit, 2020. "Modelling Time-Varying Parameters in Panel Data State-Space Frameworks: An Application to the Feldstein–Horioka Puzzle," Computational Economics, Springer;Society for Computational Economics, vol. 56(1), pages 87-114, June.
    9. Nasreen, Samia & Anwar, Sofia & Ozturk, Ilhan, 2017. "Financial stability, energy consumption and environmental quality: Evidence from South Asian economies," Renewable and Sustainable Energy Reviews, Elsevier, vol. 67(C), pages 1105-1122.
    10. Garrod Brian & Almeida António & Machado Luiz, 2023. "Modelling of nonlinear asymmetric effects of changes in tourism on economic growth in an autonomous small-island economy," European Journal of Tourism, Hospitality and Recreation, Sciendo, vol. 13(2), pages 154-172, December.
    11. Zhuo Qiao & Keith Lam, 2011. "Granger causal relations among Greater China stock markets: a nonlinear perspective," Applied Financial Economics, Taylor & Francis Journals, vol. 21(19), pages 1437-1450.
    12. Vincent Brémond & Emmanuel Hache & Tovonony Razafindrabe, 2016. "The Oil Price and Exchange Rate Relationship Revisited: A time-varying VAR parameter approach," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 13(1), pages 97-131, June.
    13. Theodosios Anastasios Perifanis, 2022. "The Macroeconomic Results of Diligent Resource Revenues Management: The Norwegian Case," Energies, MDPI, vol. 15(4), pages 1-14, February.
    14. Ibrahim Ari & Muammer Koc, 2018. "Sustainable Financing for Sustainable Development: Understanding the Interrelations between Public Investment and Sovereign Debt," Sustainability, MDPI, vol. 10(11), pages 1-25, October.
    15. Shyh-Wei Chen, 2008. "Non-stationarity and Non-linearity in Stock Prices: Evidence from the OECD Countries," Economics Bulletin, AccessEcon, vol. 3(11), pages 1-11.
    16. Aboura, Sofiane & Chevallier, Julien, 2016. "Spikes and crashes in the oil market," Research in International Business and Finance, Elsevier, vol. 36(C), pages 615-623.
    17. Singh, Prakash & Pandey, Manoj K., 2009. "Structural break, stability and demand for money in India," MPRA Paper 15425, University Library of Munich, Germany.
    18. Bosupeng, Mpho & Biza-Khupe, Simangaliso, 2015. "The Impact of Money Supply Volatility on the Fisher Effect –A Botswana Empirical Perspective," MPRA Paper 77920, University Library of Munich, Germany, revised 2015.
    19. Nikeel Kumar & Ronald Ravinesh Kumar & Radika Kumar & Peter Josef Stauvermann, 2020. "Is the tourism–growth relationship asymmetric in the Cook Islands? Evidence from NARDL cointegration and causality tests," Tourism Economics, , vol. 26(4), pages 658-681, June.

    More about this item

    Keywords

    Structural Break; chow test; Zivot-Andrews Test; Unit Root;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C80 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - General
    • C87 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Econometric Software

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:esprep:172517. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/zbwkide.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.