Sequential Testing with Uniformly Distributed Size

Stanislav Anatolyev () and Grigory Kosenok

No w0123, Working Papers from Center for Economic and Financial Research (CEFIR)

Abstract: Sequential procedures of testing for structural stability do not provide enough guidance on the shape of boundaries that are used to decide on acceptance or rejection, requiring only that the overall size of the test is asymptotically controlled. We introduce and motivate a reasonable criterion for a shape of boundaries which requires that the test size be uniformly distributed over the testing period. Under this criterion, we numerically construct boundaries for most popular sequential tests that are characterized by a test statistic behaving asymptotically either as a Wiener process or Brownian bridge. We handle this problem both in a context of retrospecting a historical sample and in a context of monitoring newly arriving data. We tabulate the boundaries by tting them to certain ‡exible but parsimonious functional forms. Interesting patterns emerge in an illustrative application of sequential tests to the Phillips curve model.

Keywords: Structural stability; sequential tests; CUSUM; retrospection; monitoring; boundaries; asymptotic size (search for similar items in EconPapers)
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Date: 2011-04
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