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The Information Content of Implied Probabilities to Detect Structural Change

Author

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  • Alain Guay

    (Department of Economics, Universite du Quebec a Montreal)

  • Jean-Francois Lamarche

    (Department of Economics, Brock University)

Abstract

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.

Suggested Citation

  • Alain Guay & Jean-Francois Lamarche, 2005. "The Information Content of Implied Probabilities to Detect Structural Change," Working Papers 0804, Brock University, Department of Economics, revised Oct 2008.
    • Handle: RePEc:brk:wpaper:0804
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Generalized empirical likelihood; generalized method of moments; parameter instability; structural change;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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