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Comparison of the Performance of Structural Break Tests in Stationary and Nonstationary Series: A New Bootstrap Algorithm

Author

Listed:
  • Özge Çamalan

    (Atilim University)

  • Esra Hasdemir

    (Atilim University)

  • Tolga Omay

    (Atilim University)

  • Mustafa Can Küçüker

    (Atilim University)

Abstract

Structural breaks are considered as permanent changes in the series mainly because of shocks, policy changes, and global crises. Hence, making estimations by ignoring the presence of structural breaks may cause the biased parameter value. In this context, it is vital to identify the presence of the structural breaks and the break dates in the series to prevent misleading results. Accordingly, the first aim of this study is to compare the performance of unit root with structural break tests allowing a single break and multiple structural breaks. For this purpose, firstly, a Monte Carlo simulation study has been conducted through using a generated homoscedastic and stationary series in different sample sizes to evaluate the performances of these tests. As a result of the simulation study, Zivot and Andrews (J Bus Econ Stat 20(1):25–44, 1992) are the best-performing tests in capturing a single break. The most powerful tests for the multiple break setting are those developed by Kapetanios (J Time Ser Anal 26(1):123–133, 2005) and Perron (Palgrave Handb Econom 1:278–352, 2006). A new Bootstrap algorithm has been proposed along with the study’s primary aim. This newly proposed Bootstrap algorithm calculates the optimal number of statistically significant structural breaks under more general assumptions. Therefore, it guarantees finding an accurate number of optimal breaks in real-world data. In the empirical part, structural breaks in the real interest rate data of the US and Australia resulting from policy changes have been examined. The results concluded that the bootstrap sequential break test is the best-performing approach due to the general assumption made to cover real-world data.

Suggested Citation

  • Özge Çamalan & Esra Hasdemir & Tolga Omay & Mustafa Can Küçüker, 2025. "Comparison of the Performance of Structural Break Tests in Stationary and Nonstationary Series: A New Bootstrap Algorithm," Computational Economics, Springer;Society for Computational Economics, vol. 65(6), pages 3111-3159, June.
    • Handle: RePEc:kap:compec:v:65:y:2025:i:6:d:10.1007_s10614-024-10651-z
    DOI: 10.1007/s10614-024-10651-z
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    More about this item

    Keywords

    Unit root with structural breaks; Monte Carlo simulation; Real interest rate; Bootstrap algorithm;
    All these keywords.

    JEL classification:

    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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