Detecting multiple level shifts in bounded time series

Josep Carrion-i-Silvestre and María Dolores Gadea ()
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María Dolores Gadea: University of Zaragoza

No 202106, AQR Working Papers from University of Barcelona, Regional Quantitative Analysis Group

Abstract: The paper proposes a sequential statistical procedure to test for the presence of level shifts affecting bounded time series, regardless of their order of integration. The paper shows that bounds are relevant for the statistic that assume that the time series are integrated of order one, whereas they do not affect the limiting distribution of the statistic that is defined for time series that are integrated of order zero. The paper proposes a union rejection statistic for bounded processes that does not require information about the order of integration of the stochastic processes. The model specification is general enough to consider the existence of structural breaks that can affect either the level of the time series and/or the bounds that limit its evolution. Monte Carlo simulations indicate that the procedure works well in finite samples. An empirical application that focuses on the Swiss franc against the euro exchange rate evolution illustrates the usefulness of the proposal.

Keywords: Structural breaks; bounded processes; changing bounds JEL classification: C12; C22 (search for similar items in EconPapers)
Pages: 70 pages
Date: 2021-07, Revised 2021-07
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ore
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http://www.ub.edu/irea/working_papers/2021/202115.pdf (application/pdf)

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Working Paper: Detecting multiple level shifts in bounded time series (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:aqr:wpaper:202106

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