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Testing parameter constancy in linear models against stochastic stationary parameters

  • Lin, Chien-Fu Jeff
  • Terasvirta, Timo

This paper considers testing parameter constancy in linear models when the alternative is that a subset of the parameters follow a stationary vector autoregressive process of known finite order. This kind of a linear model is only identified under the alternative, which usually precludes finding a test statistic with an analytic nuyll distribution. In the present situation, however, it is still possible to derive a test statistic with an asymptotic chi-squared distribution under the null hypothesis and this is done in the paper. The small-sample properties of the test statistic are investigated by simulation and found satisfactory. The test retains its power when the alternative to parameter constancy is a random walk parameter process.

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Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 90 (1999)
Issue (Month): 2 (June)
Pages: 193-213

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Handle: RePEc:eee:econom:v:90:y:1999:i:2:p:193-213
Contact details of provider: Web page: http://www.elsevier.com/locate/jeconom

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  1. Watson, Mark W & Engle, Robert F, 1985. "Testing for Regression Coefficient Stability with a Stationary AR(1) Alternative," The Review of Economics and Statistics, MIT Press, vol. 67(2), pages 341-46, May.
  2. Donald W.K. Andrews, 1990. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Cowles Foundation Discussion Papers 943, Cowles Foundation for Research in Economics, Yale University.
  3. PAGAN, Adrian, . "Some identification and estimation results for regression models with stochastically varying coefficients," CORE Discussion Papers RP -413, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Lin, Chien-Fu Jeff & Terasvirta, Timo, 1994. "Testing the constancy of regression parameters against continuous structural change," Journal of Econometrics, Elsevier, vol. 62(2), pages 211-228, June.
  5. Shively, Thomas S., 1988. "An analysis of tests for regression coefficient stability," Journal of Econometrics, Elsevier, vol. 39(3), pages 367-386, November.
  6. Bos, T & Newbold, P, 1984. "An Empirical Investigation of the Possibility of Stochastic Systematic Risk in the Market Model," The Journal of Business, University of Chicago Press, vol. 57(1), pages 35-41, January.
  7. Min, C.K. & Zellner, A., 1992. ""Bayesian and Non-Bayesian Methods for Combining Models and Forecasts with Applications to Forecasting International Growth Rates"," Papers 90-92-23, California Irvine - School of Social Sciences.
  8. DAVIDSON, Russel & MACKINNON, James G., . "Heteroskedastcity-robust tests in regressions directions," CORE Discussion Papers RP -678, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  9. 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.
  10. Brooks, Robert D., 1993. "Alternative point-optimal tests for regression coefficient stability," Journal of Econometrics, Elsevier, vol. 57(1-3), pages 365-376.
  11. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-44, January.
  12. Dufour, Jean-Marie, 1982. "Recursive stability analysis of linear regression relationships: An exploratory methodology," Journal of Econometrics, Elsevier, vol. 19(1), pages 31-76, May.
  13. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
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