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Bootstrap Tests in Bivariate VAR Process with Single Structural Change : Power versus Corrected Size and Empirical Illustration

  • Jamel Jouini

    ()

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579, FSEGN - Faculté des Sciences Economique et de gestion de Nabeul - Faculté des Sciences Economique et de gestion de Nabeul)

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    This paper evaluates the finite-sample performance of single structural change tests based onthe asymptotic distribution and bootstrap procedures. In addition to the conventional case of stationaryregressors, we consider nonstationary regressors and others characterized by the presence of a break intheir structure. While our paper borrows the idea of assessing the performance of structural break testsfrom an other paper, ours is the first to examine and compare the power of such tests on the basis ofcorrected size by using graphical methods. We endeavour to see whether some conclusions, obtainedfor some tests, remain again valid for others based on an other type of processes. Some bootstrapprocedures quasi-perfectly correct the size distortions of their asymptotic counterparts and have thesame power performance as them on the corrected size basis; property often difficult to obtain. We finally propose a modelling strategy to study the relationship between U.S. interest rates. The results show that such relationship has been altered by a regime-shift located at the beginning of the 1980s.

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    Paper provided by HAL in its series Working Papers with number halshs-00410759.

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    Date of creation: 2006
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    Handle: RePEc:hal:wpaper:halshs-00410759
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    1. Donald W.K. Andrews, 1990. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Cowles Foundation Discussion Papers 943, Cowles Foundation for Research in Economics, Yale University.
    2. Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche 9552, Universite de Montreal, Departement de sciences economiques.
    3. Davidson, Russell & MacKinnon, James G., 1999. "The Size Distortion Of Bootstrap Tests," Econometric Theory, Cambridge University Press, vol. 15(03), pages 361-376, June.
    4. Russell Davidson & James MacKinnon, 2000. "Bootstrap tests: how many bootstraps?," Econometric Reviews, Taylor & Francis Journals, vol. 19(1), pages 55-68.
    5. Christiano, Lawrence J, 1992. "Searching for a Break in GNP," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 237-50, July.
    6. Davidson, Russell & MacKinnon, James G, 1998. "Graphical Methods for Investigating the Size and Power of Hypothesis Tests," The Manchester School of Economic & Social Studies, University of Manchester, vol. 66(1), pages 1-26, January.
    7. Andrews, Donald W K & Ploberger, Werner, 1994. "Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative," Econometrica, Econometric Society, vol. 62(6), pages 1383-1414, November.
    8. Francis X. Diebold & Celia Chen, 1993. "Testing structural stability with endogenous break point: a size comparison of analytic and bootstrap procedures," Working Papers 93-11, Federal Reserve Bank of Philadelphia.
    9. Russell Davidson & James G. MacKinnon, 2004. "The Power of Bootstrap and Asymptotic Tests," Working Papers 1035, Queen's University, Department of Economics.
    10. J. Jouini & M. Boutahar, 2003. "Structural breaks in the U.S. inflation process: a further investigation," Applied Economics Letters, Taylor & Francis Journals, vol. 10(15), pages 985-988.
    11. Mohamed Safouane Ben Aissa & Jamel Jouini, 2003. "Structural breaks in the US inflation process," Applied Economics Letters, Taylor & Francis Journals, vol. 10(10), pages 633-636.
    12. Hansen, Bruce E., 2000. "Testing for structural change in conditional models," Journal of Econometrics, Elsevier, vol. 97(1), pages 93-115, July.
    13. Dufour, Jean-Marie & Kiviet, Jan F., 1996. "Exact tests for structural change in first-order dynamic models," Journal of Econometrics, Elsevier, vol. 70(1), pages 39-68, January.
    14. Donald W.K. Andrews & Inpyo Lee & Werner Ploberger, 1992. "Optimal Changepoint Tests for Normal Linear Regression," Cowles Foundation Discussion Papers 1016, Cowles Foundation for Research in Economics, Yale University.
    15. Jushan Bai, 1997. "Estimation Of A Change Point In Multiple Regression Models," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 551-563, November.
    16. Horowitz, Joel L., 1994. "Bootstrap-based critical values for the information matrix test," Journal of Econometrics, Elsevier, vol. 61(2), pages 395-411, April.
    17. Mohamed Safouane Ben Aissa & Mohamed Boutahar & Jamel Jouini, 2004. "Bai and Perron's and spectral density methods for structural change detection in the US inflation process," Applied Economics Letters, Taylor & Francis Journals, vol. 11(2), pages 109-115.
    18. Ploberger, Werner & Kramer, Walter, 1996. "A trend-resistant test for structural change based on OLS residuals," Journal of Econometrics, Elsevier, vol. 70(1), pages 175-185, January.
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