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Structural Change Tests for Simulated Method of Moments

  • Eric Ghysels
  • Alain Guay

Simulation-based estimation methods have become more widely used in recent years. We propose a set of tests for structural change in models estimates via Simulated Method of Moments (see Duffie and Singleton (1993)). These tests extend the recent work of Andrews (1993) and Sowell (1996a, b) which covered Generalized Method of Moments estimators not involving simulation. We derive the asymptotic distribution of various tests. We show that the number of simulations does not affect the asymptotic distribution nor the asymptotic local power of tests for structural change. A Monte Carlo investigation of the finite sample size and power reveals, however, that simulation uncertainty does affect the properties of tests. Nevertheless, even a relatively small number of simulations suffices to obtain tests with desirable small sample size and power properties. Les méthodes simulées d'estimation sont de plus en plus utilisées pour l'estimation et l'évaluation de modèles structurels. Dans cette étude, nous introduisons un ensemble de tests de stabilité pour les modèles estimés à l'aide de la méthode des moments simulés (voir Duffie et Singleton (1993)). Ces tests sont basés sur les travaux récents, dans le cadre de la méthode des moments généralisés, de Andrews (1993) et Sowell (1996a, b). Nous obtenons la loi asymptotique de ces tests et nous montrons que cette loi ainsi que la puissance locale asymptotique ne dépendent pas du nombre de simulations. Une étude de Monte-Carlo révèle qu'en petit échantillon le nombre de simulations influence le niveau et la puissance des tests. Cependant, un nombre restreint de simulations semble suffisant pour obtenir des bonnes propriétés de petit échantillon.

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File URL: http://www.cirano.qc.ca/files/publications/98s-19.pdf
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Paper provided by CIRANO in its series CIRANO Working Papers with number 98s-19.

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Length: 33 pages
Date of creation: 01 Jun 1998
Date of revision:
Handle: RePEc:cir:cirwor:98s-19
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  1. 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.
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  4. Duffie, Darrell & Singleton, Kenneth J, 1993. "Simulated Moments Estimation of Markov Models of Asset Prices," Econometrica, Econometric Society, vol. 61(4), pages 929-52, July.
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  7. GHYSELS, Eric & HARVEY, Andrew & RENAULT, Eric, 1995. "Stochastic Volatility," CORE Discussion Papers 1995069, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Dufour, Jean-Marie & Ghysels, Eric & Hall, Alastair, 1994. "Generalized Predictive Tests and Structural Change Analysis in Econometrics," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(1), pages 199-229, February.
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