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Propositions, Principles and Methods: The Linear Hypothesis and Structural Change

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  • Fisher, Gordon

Abstract

This paper seeks to distinguish between the principles upon which testing of statistical hypotheses may be based and the practical methods which these principles generate. Seber's (1964) conclusion, that the Wald, Lagrange Multiplier and Likelihood Ratio Principles all lead to exactly the same test statistic in the case of a linear hypothesis, is re-examined in the light of a strict interpretation of the principles. Simple relations between various test statistics and their distributions are outlined. These are then applied to two well-known methods of testing for structural change. It is found that the cusum of squares test using recursive residuals is based upon the Lagrange Multiplier Principle while the prediction interval (or Chow-) test is based upon the Wald Principle. Relations between these tests and some straightforward extensions are outlined.

Suggested Citation

  • Fisher, Gordon, 1980. "Propositions, Principles and Methods: The Linear Hypothesis and Structural Change," Queen's Institute for Economic Research Discussion Papers 275175, Queen's University - Department of Economics.
    • Handle: RePEc:ags:queddp:275175
    DOI: 10.22004/ag.econ.275175
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    File URL: https://ageconsearch.umn.edu/record/275175/files/QUEENS-IER-PAPER-410.pdf
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    References listed on IDEAS

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    1. Gordon Fisher, 1980. "Propositions, Principles and Methods: The Case of the Linear Hypothesis," Working Paper 377, Economics Department, Queen's University.
    2. Fisher, Gordon, 1980. "Propositions, Principles and Methods: the Case of the Linear Hypothsis," Queen's Institute for Economic Research Discussion Papers 275155, Queen's University - Department of Economics.
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    Cited by:

    1. Gordon Fisher & Allan W. Gregory & Michael McAleer, 1980. "Two Papers on Linear Models," Working Paper 411, Economics Department, Queen's University.

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      Keywords

      Financial Economics; Public Economics;

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