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Monitoring change in persistence in linear time series

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  • Chen, Zhanshou
  • Tian, Zheng
  • Wei, Yuesong

Abstract

A moving ratio monitoring scheme is proposed to detect changes between trend stationary (I(0)) and difference stationary (I(1)) regimes. It is consistent both for I(1) to I(0) and I(0) to I(1) change, and has less computation time. The empirical size, power and average run length of the test are evaluated in a simulation study. Simulations indicate that the new method achieves a far superior finite sample performance as compared with the existing variance ratio monitoring procedure in the literature. A modified version is also considered under I(0) null hypothesis in the presence of a variance shift. In addition, we apply the procedure to investigate the US inflation rate data and show how it is used to detect multiple changes in persistence.

Suggested Citation

  • Chen, Zhanshou & Tian, Zheng & Wei, Yuesong, 2010. "Monitoring change in persistence in linear time series," Statistics & Probability Letters, Elsevier, vol. 80(19-20), pages 1520-1527, October.
  • Handle: RePEc:eee:stapro:v:80:y:2010:i:19-20:p:1520-1527
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    References listed on IDEAS

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    1. Steland, Ansgar, 2007. "Monitoring Procedures To Detect Unit Roots And Stationarity," Econometric Theory, Cambridge University Press, vol. 23(06), pages 1108-1135, December.
    2. repec:fth:harver:1418 is not listed on IDEAS
    3. Cavaliere, Giuseppe & Taylor, A.M. Robert, 2008. "Testing for a change in persistence in the presence of non-stationary volatility," Journal of Econometrics, Elsevier, vol. 147(1), pages 84-98, November.
    4. Fukuda, Kosei, 2006. "Monitoring unit root and multiple structural changes: An information criterion approach," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 71(2), pages 121-130.
    5. Busetti, Fabio & Taylor, A. M. Robert, 2004. "Tests of stationarity against a change in persistence," Journal of Econometrics, Elsevier, vol. 123(1), pages 33-66, November.
    6. J. Bradford DeLong & Lawrence H. Summers, 1988. "How Does Macroeconomic Policy Affect Output?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(2), pages 433-494.
    7. Leybourne, Stephen & Taylor, A. M. Robert, 2004. "On tests for changes in persistence," Economics Letters, Elsevier, vol. 84(1), pages 107-115, July.
    8. Stephen Leybourne & Tae-Hwan Kim & Vanessa Smith & Paul Newbold, 2003. "Tests for a change in persistence against the null of difference-stationarity," Econometrics Journal, Royal Economic Society, vol. 6(2), pages 291-311, December.
    9. Chu, Chia-Shang James & Stinchcombe, Maxwell & White, Halbert, 1996. "Monitoring Structural Change," Econometrica, Econometric Society, vol. 64(5), pages 1045-1065, September.
    10. Breitung, Jorg, 2002. "Nonparametric tests for unit roots and cointegration," Journal of Econometrics, Elsevier, vol. 108(2), pages 343-363, June.
    11. Kim, Jae-Young, 2000. "Detection of change in persistence of a linear time series," Journal of Econometrics, Elsevier, vol. 95(1), pages 97-116, March.
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    Cited by:

    1. Chen, Zhanshou & Jin, Zi & Tian, Zheng & Qi, Peiyan, 2012. "Bootstrap testing multiple changes in persistence for a heavy-tailed sequence," Computational Statistics & Data Analysis, Elsevier, vol. 56(7), pages 2303-2316.

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