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Identification Using Stability Restrictions

  • Leandro M. Magnusson


    (Department of Economics, Tulane University)

  • Sophocles Mavroeidis

    (Brown University)

Structural change, typically induced by policy regime shifts, is a common feature of dynamic economic models. We show that structural change can be used constructively to improve the identification of structural parameters that are stable over time. A leading example is models that are immune to the well-known Lucas (1976) critique. This insight is used to develop novel econometric methods that extend the widely used generalized method of moments (GMM). The proposed methods yield improved inference in a leading macroeconomic policy model.

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Paper provided by Tulane University, Department of Economics in its series Working Papers with number 1116.

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Length: 42 pages
Date of creation: Jan 2011
Date of revision:
Handle: RePEc:tul:wpaper:1116
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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. Kleibergen, Frank & Mavroeidis, Sophocles, 2009. "Weak Instrument Robust Tests in GMM and the New Keynesian Phillips Curve," Journal of Business & Economic Statistics, American Statistical Association, vol. 27(3), pages 293-311.
  3. Christopher A. Sims & Tao Zha, 2004. "Were there regime switches in U.S. monetary policy?," FRB Atlanta Working Paper 2004-14, Federal Reserve Bank of Atlanta.
  4. Raffaella Giacomini & Barbara Rossi, 2014. "Model comparisons in unstable environments," Economics Working Papers 1437, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 2015.
  5. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," CEPR Discussion Papers 1908, C.E.P.R. Discussion Papers.
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  7. Andrews, Donald W.K. & Marmer, Vadim, 2008. "Exactly distribution-free inference in instrumental variables regression with possibly weak instruments," Journal of Econometrics, Elsevier, vol. 142(1), pages 183-200, January.
  8. James H. Stock & Mark W. Watson, 1994. "Evidence on Structural Instability in Macroeconomic Time Series Relations," NBER Technical Working Papers 0164, National Bureau of Economic Research, Inc.
  9. Donald W.K. Andrews & James H. Stock, 2005. "Inference with Weak Instruments," NBER Technical Working Papers 0313, National Bureau of Economic Research, Inc.
  10. Margaret M. McConnell & Gabriel Perez Quiros, 1998. "Output fluctuations in the United States: what has changed since the early 1980s?," Staff Reports 41, Federal Reserve Bank of New York.
  11. Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche 9552, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  12. Argia M. Sbordone, 2001. "Prices and Unit Labor Costs: A New Test of Price Stickiness," Departmental Working Papers 200112, Rutgers University, Department of Economics.
  13. Arthur Lewbel, 2003. "Using Heteroskedasticity to Identify and Estimate Mismeasured and Endogenous Regressor Models," Boston College Working Papers in Economics 587, Boston College Department of Economics, revised 15 Dec 2010.
  14. Bruce E. Hansen, 1998. "Testing for Structural Change in Conditional Models," Boston College Working Papers in Economics 310., Boston College Department of Economics.
  15. Rossi, Barbara, 2002. "Optimal Tests for Nested Model Selection with Underlying Parameter Instability," Working Papers 02-05, Duke University, Department of Economics.
  16. Fabio Canova, 2009. "Comment to "Weak instruments robust tests in GMM and the New Keynesian Phillips curve" by Frank Kleibergen and Sophocles Mavroeidis," Economics Working Papers 1159, Department of Economics and Business, Universitat Pompeu Fabra.
  17. Pierre Perron, 2005. "Dealing with Structural Breaks," Boston University - Department of Economics - Working Papers Series WP2005-017, Boston University - Department of Economics.
  18. Hendry, David F. & Massmann, Michael, 2007. "Co-Breaking: Recent Advances and a Synopsis of the Literature," Journal of Business & Economic Statistics, American Statistical Association, vol. 25, pages 33-51, January.
  19. Eric Zivot & Saraswata Chaudhuri, 2009. "A Comment on Weak Instrument Robust Tests in GMM and the New Keynesian Phillips Curve," Working Papers UWEC-2008-23-P, University of Washington, Department of Economics.
  20. Marcelo J. Moreira, 2003. "A Conditional Likelihood Ratio Test for Structural Models," Econometrica, Econometric Society, vol. 71(4), pages 1027-1048, 07.
  21. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
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  23. Sowell, Fallaw, 1996. "Optimal Tests for Parameter Instability in the Generalized Method of Moments Framework," Econometrica, Econometric Society, vol. 64(5), pages 1085-1107, September.
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