Inference regarding multiple structural changes in linear models estimated via two stage least squares

Alastair R. Hall, Sanggohn Han and Otilia Boldea

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper, we extend Bai and Perron’s (1998, Econometrica, p.47-78) framework for multiple break testing to linear models estimated via Two Stage Least Squares (2SLS). Within our framework, the break points are estimated simultaneously with the regression parameters via minimization of the residual sum of squares on the second step of the 2SLS estimation. We establish the consistency of the resulting estimated break point fractions. We show that various F-statistics for structural instability based on the 2SLS estimator have the same limiting distribution as the analogous statistics for OLS considered by Bai and Perron (1998). This allows us to extend Bai and Perron’s (1998) sequential procedure for selecting the number of break points to the 2SLS setting. Our methods also allow for structural instability in the reduced form that has been identified a priori using data-based methods. As an empirical illustration, our methods are used to assess the stability of the New Keynesian Phillips curve.

Keywords: unknown break points; structural change; instrumental variables; endogenous regressors; structural stability tests; new Keynesian Phillips curve (search for similar items in EconPapers)
JEL-codes: C01 C12 C13 C22 C32 (search for similar items in EconPapers)
Date: 2008-06-20, Revised 2008-06-20
New Economics Papers: this item is included in nep-ecm
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Citations: View citations in EconPapers (2)

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