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The Information Content of Implied Probabilities to Detect Structural Change

  • Alain Guay


    (Department of Economics, Universite du Quebec a Montreal)

  • Jean-Francois Lamarche


    (Department of Economics, Brock University)

This paper proposes Pearson-type statistics based on implied probabilities to detect structural change. The class of generalized empirical likelihood estimators (see Smith, 1997) assigns a set of probabilities to each observation such that moment conditions are satisfied. These restricted probabilities are called implied probabilities. Implied probabilities may also be constructed for the standard GMM (see Back and Brown, 1993). The proposed test statistics for structural change are based on the information content in these implied probabilities. We consider cases of structural change with unknown breakpoint which can occur in the parameters of interest or in the overidentifying restrictions used to estimate these parameters. The test statistics considered here have good size and power properties.

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Paper provided by Brock University, Department of Economics in its series Working Papers with number 0804.

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Length: 37 pages
Date of creation: Jul 2005
Date of revision: Oct 2008
Handle: RePEc:brk:wpaper:0804
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  2. Guido W. Imbens & Richard H. Spady & Phillip Johnson, 1998. "Information Theoretic Approaches to Inference in Moment Condition Models," Econometrica, Econometric Society, vol. 66(2), pages 333-358, March.
  3. Allan W. Gregory & Jean-Francois Lamarche & Gregor W. Smith, 2001. "Information-Theoretic Estimation of Preference Parameters: Macroeconomic Applications and Simulation Evidence," Working Papers 1249, Queen's University, Department of Economics.
  4. Ghysels, E. & Guay, A. & Hall, A., 1995. "Predictive Tests for Structural Change with Unknown Breakpoint," Cahiers de recherche 9524, Universite de Montreal, Departement de sciences economiques.
  5. Whitney Newey & Richard Smith, 2003. "Higher order properties of GMM and generalised empirical likelihood estimators," CeMMAP working papers CWP04/03, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  6. Joaquim J.S. Ramalho & Richard J. Smith, 2005. "Goodness of Fit Tests for Moment Condition Models," Economics Working Papers 5_2005, University of Évora, Department of Economics (Portugal).
  7. Richard Smith, 2004. "GEL Criteria for Moment Condition Models," CeMMAP working papers CWP19/04, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  8. Yuichi Kitamura, 2001. "Asymptotic Optimality of Empirical Likelihood for Testing Moment Restrictions," Econometrica, Econometric Society, vol. 69(6), pages 1661-1672, November.
  9. Hall, Peter & Horowitz, Joel L, 1996. "Bootstrap Critical Values for Tests Based on Generalized-Method-of-Moments Estimators," Econometrica, Econometric Society, vol. 64(4), pages 891-916, July.
  10. Alain Guay & Jean-Francois Lamarche, 2010. "Structural change tests for GEL criteria," Working Papers 1002, Brock University, Department of Economics.
  11. Hélène Bonnal & Éric Renault, 2004. "On the Efficient Use of the Informational Content of Estimating Equations: Implied Probabilities and Euclidean Empirical Likelihood," CIRANO Working Papers 2004s-18, CIRANO.
  12. Ghysels, Eric & Hall, Alastair, 1990. "Are consumption-based intertemporal capital asset pricing models structural?," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 121-139.
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  15. Otsu, Taisuke, 2006. "Generalized Empirical Likelihood Inference For Nonlinear And Time Series Models Under Weak Identification," Econometric Theory, Cambridge University Press, vol. 22(03), pages 513-527, June.
  16. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-56, July.
  17. Donald W.K. Andrews & Werner Ploberger, 1992. "Optimal Tests When a Nuisance Parameter Is Present Only Under the Alternative," Cowles Foundation Discussion Papers 1015, Cowles Foundation for Research in Economics, Yale University.
  18. Yuichi Kitamura & Michael Stutzer, 1997. "An Information-Theoretic Alternative to Generalized Method of Moments Estimation," Econometrica, Econometric Society, vol. 65(4), pages 861-874, July.
  19. Mehmet Caner, 2010. "Exponential Tilting with Weak Instruments: Estimation and Testing," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 72(3), pages 307-325, 06.
  20. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
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  22. Stanislav Anatolyev, 2005. "GMM, GEL, Serial Correlation, and Asymptotic Bias," Econometrica, Econometric Society, vol. 73(3), pages 983-1002, 05.
  23. Hall, Alastair R & Sen, Amit, 1999. "Structural Stability Testing in Models Estimated by Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(3), pages 335-48, July.
  24. Hansen, Lars Peter & Heaton, John & Yaron, Amir, 1996. "Finite-Sample Properties of Some Alternative GMM Estimators," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(3), pages 262-80, July.
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