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A Joint Chow Test for Structural Instability

  • Bent Nielsen

    ()

    (Dept of Economics, University of Oxford)

  • Andrew Whitby

    ()

    (Dept of Economics, University of Oxford)

The classical Chow (1960) test for structural instability requires strictly exogenous regressors and a break-point speci ed in advance. In this paper we consider two generalisations, the 1-step recursive Chow test (based on the sequence of studentized recursive residuals) and its supremum counterpart, which relax these requirements. We use results on strong consistency of regression estimators to show that the 1-step test is appropriate for stationary, unit root or explosive processes modelled in the autoregressive distributed lags (ADL) framework. We then use results in extreme value theory to develop a new supremum version of the test, suitable for formal testing of structural instability with an unknown break-point. The test assumes normality of errors, and is intended to be used in situations where this can either be assumed or established empirically.

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File URL: http://www.nuffield.ox.ac.uk/economics/papers/2012/nielsenwhitby-jointchow.pdf
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Paper provided by Economics Group, Nuffield College, University of Oxford in its series Economics Papers with number 2012-W07.

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Length: 20 pages
Date of creation: 25 Jun 2012
Date of revision:
Handle: RePEc:nuf:econwp:1207
Contact details of provider: Web page: http://www.nuff.ox.ac.uk/economics/

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  1. Kilian, Lutz & Demiroglu, Ufuk, 2000. "Residual-Based Tests for Normality in Autoregressions: Asymptotic Theory and Simulation Evidence," Journal of Business & Economic Statistics, American Statistical Association, vol. 18(1), pages 40-50, January.
  2. Bent Nielsen & Eric Engler, 2007. "The empirical process of autoregressive residuals," Economics Papers 2007-W01, Economics Group, Nuffield College, University of Oxford.
  3. Bent Nielsen & Jouni Sohkanen, 2009. "Asymptotic behaviour of the CUSUM of squares test under stochastic and deterministic time trends," Economics Series Working Papers 2009-W09, University of Oxford, Department of Economics.
  4. Hendry, David F., 1995. "Dynamic Econometrics," OUP Catalogue, Oxford University Press, number 9780198283164, March.
  5. James H. Stock & Mark W. Watson, 2003. "Has the Business Cycle Changed and Why?," NBER Chapters, in: NBER Macroeconomics Annual 2002, Volume 17, pages 159-230 National Bureau of Economic Research, Inc.
  6. Ploberger, Werner & Kramer, Walter, 1986. "On studentizing a test for structural change," Economics Letters, Elsevier, vol. 20(4), pages 341-344.
  7. Davidson, James, 1994. "Stochastic Limit Theory: An Introduction for Econometricians," OUP Catalogue, Oxford University Press, number 9780198774037, March.
  8. Nielsen, Bent, 2005. "Strong Consistency Results For Least Squares Estimators In General Vector Autoregressions With Deterministic Terms," Econometric Theory, Cambridge University Press, vol. 21(03), pages 534-561, June.
  9. Johansen, S., 1999. "A Bartlett Correction Factor for Tests on the Cointegrating Relations," Economics Working Papers eco99/10, European University Institute.
  10. Assarsson, Bengt & Berg, Claes & Jansson, Per, 1999. "Investment in Swedish Manufacturing: Analysis and Forecasts," Working Paper Series 95, Sveriges Riksbank (Central Bank of Sweden).
  11. Bauer, Dietmar, 2009. "Almost Sure Bounds On The Estimation Error For Ols Estimators When The Regressors Include Certain Mfi(1) Processes," Econometric Theory, Cambridge University Press, vol. 25(02), pages 571-582, April.
  12. Dufour, Jean-Marie, 1982. "Recursive stability analysis of linear regression relationships: An exploratory methodology," Journal of Econometrics, Elsevier, vol. 19(1), pages 31-76, May.
  13. Jurgen A Doornik & Henrik Hansen, . "An omnibus test for univariate and multivariate normalit," Economics Papers W4&91., Economics Group, Nuffield College, University of Oxford.
  14. Peter Burridge & A. M. Robert Taylor, 2006. "Additive Outlier Detection Via Extreme-Value Theory," Journal of Time Series Analysis, Wiley Blackwell, vol. 27(5), pages 685-701, 09.
  15. Hendry, David F, 1986. "Using PC-GIVE in Econometrics Teaching," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(1), pages 87-98, February.
  16. 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.
  17. Kramer, Walter & Ploberger, Werner & Alt, Raimund, 1988. "Testing for Structural Change in Dynamic Models," Econometrica, Econometric Society, vol. 56(6), pages 1355-69, November.
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