Optimal Tests for Parameter Instability in the Generalized Method of Moments Framework

Fallaw Sowell

Econometrica, 1996, vol. 64, issue 5, 1085-1107

Abstract: This paper presents optimal tests for parameter instability in the generalized method of moments (GMM) framework. The new tests include tests that are optimal for both one-sided and two-sided alternatives. One of the optimal tests for two-sided alternatives is the GMM generalization of the test presented in Andrews and Ploberger (1994) for the likelihood framework. The new tests include a class of optimal tests that direct the test's power to specific locations in the sample. One of these optimal tests has the attractive feature of a normal distribution under the null hypothesis. Copyright 1996 by The Econometric Society.

Date: 1996
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