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Estimation of Structural Break Point in Linear Regression Models

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  • Yaein Baek

Abstract

This paper proposes a point estimator of the break location for a one-time structural break in linear regression models. If the break magnitude is small, the least-squares estimator of the break date has two modes at ends of the finite sample period, regardless of the true break location. I suggest a modification of the least-squares objective function to solve this problem. The modified objective function incorporates estimation uncertainty that varies across potential break dates. The new break point estimator is consistent and has a unimodal finite sample distribution under a small break magnitude. A limit distribution is provided under a in-fill asymptotic framework which verifies that the new estimator outperforms the least-squares estimator.

Suggested Citation

  • Yaein Baek, 2018. "Estimation of Structural Break Point in Linear Regression Models," Papers 1811.03720, arXiv.org, revised May 2019.
  • Handle: RePEc:arx:papers:1811.03720
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    File URL: http://arxiv.org/pdf/1811.03720
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    References listed on IDEAS

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    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. Alessandro Casini & Pierre Perron, 2017. "Continuous Record Laplace-based Inference about the Break Date in Structural Change Models," Boston University - Department of Economics - Working Papers Series WP2018-011, Boston University - Department of Economics.
    3. Chong, Terence Tai-Leung, 2001. "Structural Change In Ar(1) Models," Econometric Theory, Cambridge University Press, vol. 17(1), pages 87-155, February.
    4. Jiang, Liang & Wang, Xiaohu & Yu, Jun, 2017. "In-fill Asymptotic Theory for Structural Break Point in Autoregression: A Unified Theory," Economics and Statistics Working Papers 10-2017, Singapore Management University, School of Economics.
    5. Kurozumi, Eiji & Tuvaandorj, Purevdorj, 2011. "Model selection criteria in multivariate models with multiple structural changes," Journal of Econometrics, Elsevier, vol. 164(2), pages 218-238, October.
    6. Bruce E. Hansen, 2001. "The New Econometrics of Structural Change: Dating Breaks in U.S. Labour Productivity," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 117-128, Fall.
    7. Elliott, Graham & Muller, Ulrich K., 2007. "Confidence sets for the date of a single break in linear time series regressions," Journal of Econometrics, Elsevier, vol. 141(2), pages 1196-1218, December.
    8. Hansen, Bruce E., 1991. "Strong Laws for Dependent Heterogeneous Processes," Econometric Theory, Cambridge University Press, vol. 7(2), pages 213-221, June.
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