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Regression-based Tests for a Change in Persistence

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  • Stephen J. Leybourne
  • Tae-Hwan Kim
  • A. M. Robert Taylor

Abstract

We show that the minimal forward (reverse) recursive unit tests of Banerjee, Lumsdaine and Stock ["Journal of Business and Economics Statistics" (1992) Vol. 10, pp. 271-288] are consistent against the alternative of a change in persistence from "I"(0) to "I"(1) ["I"(1) to "I"(0)]. However, these statistics are also shown to diverge for series which are "I"(0) throughout. Consequently, a rejection by these tests does not necessarily imply a change in persistence. We propose a further test, based on the ratio of these statistics, which is consistent against changes either from "I"(0) to "I"(1), or vice versa, yet does not over-reject against constant "I"(0) series. Consistent breakpoint estimators are proposed. Copyright 2006 Blackwell Publishing Ltd.

Suggested Citation

  • Stephen J. Leybourne & Tae-Hwan Kim & A. M. Robert Taylor, 2006. "Regression-based Tests for a Change in Persistence," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(5), pages 595-621, October.
  • Handle: RePEc:bla:obuest:v:68:y:2006:i:5:p:595-621
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    Citations

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    Cited by:

    1. Daniel Chiquiar & Antonio Noriega & Manuel Ramos-Francia, 2010. "A time-series approach to test a change in inflation persistence: the Mexican experience," Applied Economics, Taylor & Francis Journals, vol. 42(24), pages 3067-3075.
    2. Taipalus, Katja, 2012. "Detecting asset price bubbles with time-series methods," Scientific Monographs, Bank of Finland, number 2012_047, December.
    3. Xi Chen & Michael Funke, 2013. "Real-Time Warning Signs of Emerging and Collapsing Chinese House Price Bubbles," National Institute Economic Review, National Institute of Economic and Social Research, vol. 223(1), pages 39-48, February.
    4. Antonio Noriega & Carlos Capistrán & Manuel Ramos-Francia, 2013. "On the dynamics of inflation persistence around the world," Empirical Economics, Springer, vol. 44(3), pages 1243-1265, June.
    5. Taipalus, Katja, 2012. "Signaling asset price bubbles with time-series methods," Research Discussion Papers 7/2012, Bank of Finland.
    6. Virtanen, Timo & Tölö, Eero & Virén, Matti & Taipalus, Katja, 2016. "Use of unit root methods in early warning of financial crises," Research Discussion Papers 27/2016, Bank of Finland.
    7. Leybourne, Stephen J. & Taylor, A.M. Robert, 2006. "Persistence change tests and shifting stable autoregressions," Economics Letters, Elsevier, vol. 91(1), pages 44-49, April.
    8. Noriega Antonio E. & Ramos Francia Manuel, 2008. "A Note on the Dynamics of Persistence in US Inflation," Working Papers 2008-12, Banco de México.
    9. Virtanen, Timo & Tölö, Eero & Virén, Matti & Taipalus, Katja, 2017. "Use of unit root methods in early warning of financial crises," ESRB Working Paper Series 45, European Systemic Risk Board.
    10. Xi Chen & Michael Funke, 2013. "Renewed Momentum in the German Housing Market: Boom or Bubble?," CESifo Working Paper Series 4287, CESifo Group Munich.

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