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Saturation in Autoregressive Models

Author

Listed:
  • Carlos Santos

    (Portuguese Catholic University)

  • David Hendry

    (Department of Economics, University of Oxford)

Abstract

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.

Suggested Citation

  • Carlos Santos & David Hendry, 2006. "Saturation in Autoregressive Models," Notas Económicas, Faculty of Economics, University of Coimbra, issue 24, pages 8-19, December.
  • Handle: RePEc:gmf:journl:y:2006:i:24:p:8-19
    as

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    File URL: http://notas-economicas.fe.uc.pt/texts/ne024n0177.pdf
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    References listed on IDEAS

    as
    1. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
    2. 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.
    3. 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).
    4. Santos, Carlos, 2008. "Impulse saturation break tests," Economics Letters, Elsevier, vol. 98(2), pages 136-143, February.
    5. Hendry, David F., 1995. "Dynamic Econometrics," OUP Catalogue, Oxford University Press, number 9780198283164.
    6. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Carlos Santos & Maria Alberta Oliveira, 2010. "Assessing French inflation persistence with impulse saturation break tests and automatic general-to-specific modelling," Applied Economics, Taylor & Francis Journals, vol. 42(12), pages 1577-1589.
    2. Santos, Carlos, 2008. "Impulse saturation break tests," Economics Letters, Elsevier, vol. 98(2), pages 136-143, February.
    3. László Kónya & Bekzod Abdullaev, 2015. "Does Ricardian equivalence hold in Australia? A revision based on testing super exogeneity with impulse-indicator saturation," Empirical Economics, Springer, vol. 49(2), pages 423-448, September.
    4. Igor Pelipas, 2012. "Multiple Structural Breaks and Inflation Persistance in Belarus," BEROC Working Paper Series 21, Belarusian Economic Research and Outreach Center (BEROC).
    5. David Hendry & Carlos Santos, 2010. "An Automatic Test of Super Exogeneity," Economics Series Working Papers 476, University of Oxford, Department of Economics.

    More about this item

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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