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Joint change point estimation in regression coeffcients and variances of the errors of a linear model

Author

Listed:
  • Oleg Glouchakov

    () (Department of Economics, York University)

Abstract

This paper describes how to estimate the alternative model that admits a one-time break in coeffcients of a linear regression function and variances of the errors. Bai and Perron (1998) introduced an estimation and testing procedure for multiple breaks in regression coeffcients. We limit the number of breaks to one but extend the estimation to the alternative model that allows for variances of the errors to break too. The method is based on application of specific objective functions in conjunction with the tests ofstructural change. In particular, sup-Wald test of Andrews (1993) can be used to detect structural breaks. Andrews and Ploberger (1994) introduce optimal tests of constancy of model parameters when the change point is unknown. However, these tests lose their power optimality properties when the break happens in both the mean and the variance of a process. For such an alternative we introduce a statistic with a modified measure of a distance between model parameters before and after the break. In a Monte-Carlo experiment we show that the power of the corresponding sup-test dominates that of the sup-Wald test. If a change point is known, then the test based on this statistic is uniformly more powerful than the Wald test.

Suggested Citation

  • 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.
  • Handle: RePEc:yca:wpaper:2006_3
    as

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    File URL: http://dept.econ.yorku.ca/%7Eogloucha/b.pdf
    File Function: First version, 2005
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    References listed on IDEAS

    as
    1. Gourieroux,Christian & Monfort,Alain, 1995. "Statistics and Econometric Models," Cambridge Books, Cambridge University Press, number 9780521471626.
    2. repec:pit:wpaper:214 is not listed on IDEAS
    3. Andrews, Donald W. K. & Lee, Inpyo & Ploberger, Werner, 1996. "Optimal changepoint tests for normal linear regression," Journal of Econometrics, Elsevier, vol. 70(1), pages 9-38, January.
    4. Jean-Yves Pitarakis, 2004. "Least squares estimation and tests of breaks in mean and variance under misspecification," Econometrics Journal, Royal Economic Society, vol. 7(1), pages 32-54, June.
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    6. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
    7. Bai, Jushan, 1997. "Estimating Multiple Breaks One at a Time," Econometric Theory, Cambridge University Press, vol. 13(03), pages 315-352, June.
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    More about this item

    Keywords

    Change point estimation; asymptotic distribution; Wald statistic; parameter instability; structural change;

    JEL classification:

    • C0 - Mathematical and Quantitative Methods - - General
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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