IDEAS home Printed from https://ideas.repec.org/a/ids/ijcome/v14y2024i1p61-80.html
   My bibliography  Save this article

Structural breaks detection using step-indicator saturation technique in state-space model

Author

Listed:
  • Farid Zamani Che Rose
  • Mohd Tahir Ismail
  • Nur Aqilah Khadijah Rosili

Abstract

Recently, there has been a lot of interest in identifying structural breaks in economic time series. Failing to capture any structural breaks may have a pernicious effect on model estimation due to significant forecast errors after such breaks and inappropriate tests. Therefore, this study proposed a step-indicator saturation (SIS) technique as an extension of the general-to-specific (GETS) modelling framework for detecting any structural changes in time series. Monte Carlo simulations assessed the performance of the SIS in the local level model based on potency and gauge metrics using the 'gets' package in the R programming language. Sequential selection outperformed the non-sequential approach in the automatic GETS model selection procedure. Accordingly, this study applied the SIS technique to the Financial Times Stock Exchange (FTSE) Bursa Malaysia Hijrah Shariah and FTSE USA Shariah using a split-half approach and sequential selection. The retained indicators in the terminal model were selected based on the sequential and non-sequential algorithms. It was found that the retained indicators in both indices collided with the financial crises in 2008-2009. Overall, the proposed technique offers an effective approach to detect unknown locations, magnitudes, and structural break signs in a structural times series framework.

Suggested Citation

  • Farid Zamani Che Rose & Mohd Tahir Ismail & Nur Aqilah Khadijah Rosili, 2024. "Structural breaks detection using step-indicator saturation technique in state-space model," International Journal of Computational Economics and Econometrics, Inderscience Enterprises Ltd, vol. 14(1), pages 61-80.
    • Handle: RePEc:ids:ijcome:v:14:y:2024:i:1:p:61-80
    as

    Download full text from publisher

    File URL: http://www.inderscience.com/link.php?id=135656
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ids:ijcome:v:14:y:2024:i:1:p:61-80. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sarah Parker (email available below). General contact details of provider: http://www.inderscience.com/browse/index.php?journalID=311 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.