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Saturation in Autoregressive Models

  • Carlos Santos

    (Portuguese Catholic University)

  • David Hendry

    (Department of Economics, University of Oxford)

In this paper, we extend the impulse saturation algorithm to a class of dynamic models. We show that the procedure is still correctly sized for stationary AR(1) processes, independently of the number of splits used for sample partitions. We derive theoretical power when there is an additive outlier in the data, and present simulation evidence showing good empirical rejection frequencies against such an alternative. Extensive Monte Carlo evidence is presented to document that the procedure has good power against a level shift in the last rT% of the sample observations. This result does not depend on the level of serial correlation of the data and does not require the use of a (mis-specified) location-scale model, thus opening the door to an automatic class of break tests that could outperform those of the Bai-Perron type.

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Article provided by Faculdade de Economia, Universidade de Coimbra in its journal Notas Económicas.

Volume (Year): (2006)
Issue (Month): 24 (December)
Pages: 8-19

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Handle: RePEc:gmf:journl:y:2006:i:24:p:8-19
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  1. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
  2. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
  3. Hendry, David F., 1995. "Dynamic Econometrics," OUP Catalogue, Oxford University Press, number 9780198283164, March.
  4. Hendry, David F. & Learmer, Edward E. & Poirier, Dale J., 1990. "A Conversation on Econometric Methodology," Econometric Theory, Cambridge University Press, vol. 6(02), pages 171-261, June.
  5. SANTOS, Carlos & OLIVEIRA, Maria Alberta, 2007. "Modelling The German Yield Curve And Testing The Lucas Critique, 1975-2001," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 7(1).
  6. Santos, Carlos, 2008. "Impulse saturation break tests," Economics Letters, Elsevier, vol. 98(2), pages 136-143, February.
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