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Least Squares Estimation and Tests of Breaks in Mean and Variance under Misspecification

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  • Jean-Yves Pitarakis

Abstract

In this paper we investigate the consequences of misspecification on the large sample properties of change-point estimators and the validity of tests of the null hypothesis of linearity versus the alternative of a structural break. Specifically this paper concentrates on the interaction of structural breaks in the mean and variance of a time series when either of the two is omitted from the estimation and inference procedures. Our analysis considers the case of a break in mean under omitted-regime-dependent heteroscedasticity and that of a break in variance under an omitted mean shift. The large and finite sample properties of the resulting least-squares-based estimators are investigated and the impact of the two types of misspecification on inferences about the presence or absence of a structural break subsequently analysed. Copyright Royal Economic Socciety 2004
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  • Jean-Yves Pitarakis, 2003. "Least Squares Estimation and Tests of Breaks in Mean and Variance under Misspecification," Econometrics 0312004, EconWPA.
  • Handle: RePEc:wpa:wuwpem:0312004
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    References listed on IDEAS

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    1. Diebold, Francis X. & Chen, Celia, 1996. "Testing structural stability with endogenous breakpoint A size comparison of analytic and bootstrap procedures," Journal of Econometrics, Elsevier, vol. 70(1), pages 221-241, January.
    2. Chong, Terence Tai-Leung, 2001. "Structural Change In Ar(1) Models," Econometric Theory, Cambridge University Press, vol. 17(01), pages 87-155, February.
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    5. James H. Stock & Mark W. Watson, 2003. "Has the business cycle changed?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 9-56.
    6. Newey, Whitney K. & McFadden, Daniel, 1986. "Large sample estimation and hypothesis testing," Handbook of Econometrics,in: R. F. Engle & D. McFadden (ed.), Handbook of Econometrics, edition 1, volume 4, chapter 36, pages 2111-2245 Elsevier.
    7. repec:cup:etheor:v:13:y:1997:i:3:p:315-52 is not listed on IDEAS
    8. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
    9. Bai, Jushan, 1997. "Estimating Multiple Breaks One at a Time," Econometric Theory, Cambridge University Press, vol. 13(03), pages 315-352, June.
    10. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-856, July.
    11. James H. Stock & Mark W. Watson, 2005. "Understanding Changes In International Business Cycle Dynamics," Journal of the European Economic Association, MIT Press, vol. 3(5), pages 968-1006, September.
    12. M Sensier & D van Dijk, 2001. "Short-term Volatility Versus Long-term Growth: Evidence in US Macroeconomic Time Series," The School of Economics Discussion Paper Series 0103, Economics, The University of Manchester.
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    16. Hansen, Bruce E., 2000. "Testing for structural change in conditional models," Journal of Econometrics, Elsevier, vol. 97(1), pages 93-115, July.
    17. 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.
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    Citations

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    Cited by:

    1. Abi Morshed, Alaa & Andreou, E. & Boldea, Otilia, 2016. "Structural Break Tests Robust to Regression Misspecification," Discussion Paper 2016-019, Tilburg University, Center for Economic Research.
    2. Erdenebat Bataa & Denise R. Osborn & Marianne Sensier & Dick van Dijk, 2009. "Changes in International Business Cycle Affiliations," The School of Economics Discussion Paper Series 0924, Economics, The University of Manchester.
    3. Chong, Terence Tai Leung & Pang, Tianxiao & Zhang, Danna & Liang, Yanling, 2017. "Structural change in non-stationary AR(1) models," MPRA Paper 80510, University Library of Munich, Germany.
    4. Erdenebat Bataa & Denise R. Osborn & Marianne Sensier & Dick van Dijk, 2014. "Identifying Changes in Mean, Seasonality, Persistence and Volatility for G7 and Euro Area Inflation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 76(3), pages 360-388, June.
    5. repec:bla:obuest:v:79:y:2017:i:5:p:851-874 is not listed on IDEAS
    6. Konstantin A., KHOLODILIN & Wension Vincent, YAO, 2004. "Business Cycle Turning Points : Mixed-Frequency Data with Structural Breaks," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2004024, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    7. Oleg Glouchakov, 2006. "Joint change point estimation in regression coeffcients and variances of the errors of a linear model," Working Papers 2006_3, York University, Department of Economics.
    8. repec:zbw:espost:171324 is not listed on IDEAS
    9. Altansukh, Gantungalag & Becker, Ralf & Bratsiotis, George J. & Osborn, Denise R., 2017. "What is the Globalisation of Inflation?," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 1-27.
    10. Bataa, Erdenebat, 2012. "The Composite Leading Indicator of Mongolia," MPRA Paper 72415, University Library of Munich, Germany.
    11. Alessandro Casini & Pierre Perron, 2018. "Structural Breaks in Time Series," Papers 1805.03807, arXiv.org.
    12. Jean-Yves Pitarakis, 2017. "A Simple Approach for Diagnosing Instabilities in Predictive Regressions," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 79(5), pages 851-874, October.
    13. Wu, Jilin, 2016. "Detecting structural changes under nonstationary volatility," Economics Letters, Elsevier, vol. 146(C), pages 151-154.
    14. Pierre Perron & Jing Zhou, 2008. "Testing Jointly for Structural Changes in the Error Variance and Coefficients of a Linear Regression Model," Boston University - Department of Economics - Working Papers Series wp2008-011, Boston University - Department of Economics.

    More about this item

    Keywords

    Structural Break; Variance Shifts; Bootstrapping;

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs

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