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A test for changing trends with monotonic power

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  • Wu, Jilin

Abstract

We propose a powerful test for changing trends in which no nuisance parameters are needed to be nonparametrically estimated, and the only inputs required are the regression residuals under the null hypothesis. The new test allows for serial dependence, conditional heteroskedasticity and time-varying unconditional variance in error terms. Monte Carlo experiments show the test has monotonic power against abrupt or smooth structural changes in trends.

Suggested Citation

  • Wu, Jilin, 2016. "A test for changing trends with monotonic power," Economics Letters, Elsevier, vol. 141(C), pages 15-19.
  • Handle: RePEc:eee:ecolet:v:141:y:2016:i:c:p:15-19
    DOI: 10.1016/j.econlet.2016.01.006
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    References listed on IDEAS

    as
    1. Juhl, Ted & Xiao, Zhijie, 2013. "Nonparametric Tests Of Moment Condition Stability," Econometric Theory, Cambridge University Press, vol. 29(1), pages 90-114, February.
    2. Andrews, Donald W K & Ploberger, Werner, 1994. "Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative," Econometrica, Econometric Society, vol. 62(6), pages 1383-1414, November.
    3. Juhl, Ted & Xiao, Zhijie, 2009. "Tests for changing mean with monotonic power," Journal of Econometrics, Elsevier, vol. 148(1), pages 14-24, January.
    4. Ploberger, Werner & Kramer, Walter, 1992. "The CUSUM Test with OLS Residuals," Econometrica, Econometric Society, vol. 60(2), pages 271-285, March.
    5. Vogelsang, Timothy J., 1997. "Wald-Type Tests for Detecting Breaks in the Trend Function of a Dynamic Time Series," Econometric Theory, Cambridge University Press, vol. 13(6), pages 818-848, December.
    6. Wu, Jilin, 2015. "Restoring monotonic power in Wald/LM-type tests," Economics Letters, Elsevier, vol. 126(C), pages 13-17.
    7. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-856, July.
    8. Chu, Chia-Shang James & White, Halbert, 1992. "A Direct Test for Changing Trend," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 289-299, July.
    9. Perron, P., 1991. "A Test for Changes in a Polynomial Trend Functions for a Dynamioc Time Series," Papers 363, Princeton, Department of Economics - Econometric Research Program.
    10. Altissimo, Filippo & Corradi, Valentina, 2003. "Strong rules for detecting the number of breaks in a time series," Journal of Econometrics, Elsevier, vol. 117(2), pages 207-244, December.
    11. Juhl, Ted & Xiao, Zhijie, 2005. "A nonparametric test for changing trends," Journal of Econometrics, Elsevier, vol. 127(2), pages 179-199, August.
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    More about this item

    Keywords

    U-statistic; Deterministic trends; Structural changes; Monotonic power;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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