Monitoring structural change in dynamic econometric models

Kurt Hornik, Friedrich Leisch, Christian Kleiber and Achim Zeileis
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Kurt Hornik: Institut für Statistik und Mathematik, Wirtschaftsuniversität Wien, Austria, Postal: Institut für Statistik und Mathematik, Wirtschaftsuniversität Wien, Austria
Friedrich Leisch: Institut für Statistik & Wahrscheinlichkeitstheorie, Technische Universität Wien, Austria, Postal: Institut für Statistik & Wahrscheinlichkeitstheorie, Technische Universität Wien, Austria
Achim Zeileis: Institut für Statistik und Mathematik, Wirtschaftsuniversität Wien, Austria, Postal: Institut für Statistik und Mathematik, Wirtschaftsuniversität Wien, Austria

Journal of Applied Econometrics, 2005, vol. 20, issue 1, pages 99-121

Abstract: The classical approach to testing for structural change employs retrospective tests using a historical data set of a given length. Here we consider a wide array of fluctuation-type tests in a monitoring situation-given a history period for which a regression relationship is known to be stable, we test whether incoming data are consistent with the previously established relationship. Procedures based on estimates of the regression coefficients are extended in three directions: we introduce (a) procedures based on OLS residuals, (b) rescaled statistics and (c) alternative asymptotic boundaries. Compared to the existing tests our extensions offer ease of computation, improved size in finite samples for dynamic models and better power against certain alternatives, respectively. We apply our methods to three data sets, German M1 money demand, US labour productivity and S&P 500 stock returns. Copyright © 2005 John Wiley & Sons, Ltd.

Date: 2005
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