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Breaks or long memory behavior: An empirical investigation

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Listed author(s):
  • Charfeddine, Lanouar
  • Guégan, Dominique

Abstract

Are structural break models true switching models or long memory processes? The answer to this question remains ambiguous. In recent years, many papers have dealt with this problem. Some studies have shown that, under specific conditions, switching models and long memory processes can easily be confused. In this paper, using several generating models (the mean-plus-noise model, the stochastic permanent break model, the Markov switching model, the threshold autoregressive (TAR) model, the sign model, and the structural change model) and several estimation techniques (the Geweke–Porter–Hudak (GPH) technique, detrended fluctuation analysis (DFA), the exact local Whittle (ELW) method, and wavelet methods) we show that, even if the answer is quite simple in some cases, it can be mitigated in other cases. Using French and American inflation rates, we found that the most appropriate process that takes into account the important features of these series is a model that simultaneously combines changes in regimes and long memory behavior. The main result of this study indicates that estimating a long memory parameter without taking into account the presence of breaks in the data sets may lead to misspecification and hence to overestimating the true parameter.

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File URL: http://www.sciencedirect.com/science/article/pii/S0378437112005407
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Article provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.

Volume (Year): 391 (2012)
Issue (Month): 22 ()
Pages: 5712-5726

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Handle: RePEc:eee:phsmap:v:391:y:2012:i:22:p:5712-5726
DOI: 10.1016/j.physa.2012.06.036
Contact details of provider: Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/

Keywords: Spurious long memory behavior; Structural break models; GPH; DFA; ELW; Wavelet; Inflation series;

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Find related papers by JEL classification:
  • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
  • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
  • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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  1. Carrion-i-Silvestre, Josep Lluís & Kim, Dukpa & Perron, Pierre, 2009. "Gls-Based Unit Root Tests With Multiple Structural Breaks Under Both The Null And The Alternative Hypotheses," Econometric Theory, Cambridge University Press, vol. 25(06), pages 1754-1792, December.
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Cited by:

  1. Charfeddine, Lanouar & Benlagha, Noureddine, 2016. "A time-varying copula approach for modelling dependency: New evidence from commodity and stock markets," Journal of Multinational Financial Management, Elsevier, vol. 37, pages 168-189.
  2. Charfeddine, Lanouar & Khediri, Karim Ben, 2016. "Time varying market efficiency of the GCC stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 444(C), pages 487-504.
  3. Charfeddine, Lanouar, 2016. "Breaks or long range dependence in the energy futures volatility: Out-of-sample forecasting and VaR analysis," Economic Modelling, Elsevier, vol. 53(C), pages 354-374.
  4. Dominique Guégan, 2009. "A Meta-Distribution for Non-Stationary Samples," CREATES Research Papers 2009-24, Department of Economics and Business Economics, Aarhus University.
  5. Charfeddine, Lanouar, 2014. "True or spurious long memory in volatility: Further evidence on the energy futures markets," Energy Policy, Elsevier, vol. 71(C), pages 76-93.
  6. José M. Belbute & Alfredo Marvão Pereira, 2016. "Updated Reference Forecasts for Global CO2 Emissions from Fossil-Fuel Consumption," Working Papers 170, Department of Economics, College of William and Mary.
  7. repec:ipg:wpaper:2014-503 is not listed on IDEAS
  8. Carlos Barros & Luis Gil-Alana & Fernando Perez de Gracia, 2016. "Stationarity and Long Range Dependence of Carbon Dioxide Emissions: Evidence for Disaggregated Data," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 63(1), pages 45-56, January.
  9. Rinke, Saskia & Busch, Marie & Leschinski, Christian, 2017. "Long Memory, Breaks, and Trends: On the Sources of Persistence in Inflation Rates," Hannover Economic Papers (HEP) dp-584, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  10. Al-Shboul, Mohammad & Anwar, Sajid, 2016. "Fractional integration in daily stock market indices at Jordan's Amman stock exchange," The North American Journal of Economics and Finance, Elsevier, vol. 37(C), pages 16-37.
  11. repec:eee:jebusi:v:92:y:2017:i:c:p:45-62 is not listed on IDEAS

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