Breaks or long memory behavior: An empirical investigation

Lanouar Charfeddine and Dominique Guégan

Physica A: Statistical Mechanics and its Applications, 2012, vol. 391, issue 22, 5712-5726

Abstract: Are structural break models true switching models or long memory processes? The answer to this question remains ambiguous. In recent years, many papers have dealt with this problem. Some studies have shown that, under specific conditions, switching models and long memory processes can easily be confused. In this paper, using several generating models (the mean-plus-noise model, the stochastic permanent break model, the Markov switching model, the threshold autoregressive (TAR) model, the sign model, and the structural change model) and several estimation techniques (the Geweke–Porter–Hudak (GPH) technique, detrended fluctuation analysis (DFA), the exact local Whittle (ELW) method, and wavelet methods) we show that, even if the answer is quite simple in some cases, it can be mitigated in other cases. Using French and American inflation rates, we found that the most appropriate process that takes into account the important features of these series is a model that simultaneously combines changes in regimes and long memory behavior. The main result of this study indicates that estimating a long memory parameter without taking into account the presence of breaks in the data sets may lead to misspecification and hence to overestimating the true parameter.

Keywords: Spurious long memory behavior; Structural break models; GPH; DFA; ELW; Wavelet; Inflation series (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378437112005407
Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000

Related works:
Working Paper: Breaks or long memory behavior: An empirical investigation (2012)
Working Paper: Breaks or long memory behaviour: an empirical investigation (2012)
Working Paper: Breaks or long memory behavior: An empirical investigation (2012)
Working Paper: Breaks or long memory behavior: An empirical investigation (2012)
Working Paper: Breaks or long memory behaviour: an empirical investigation (2012)
Working Paper: Breaks or Long Memory Behaviour: An empirical Investigation (2009)
Working Paper: Breaks or Long Memory Behaviour: An empirical Investigation (2009)
Working Paper: Breaks or long memory behaviour: An empirical investigation (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:391:y:2012:i:22:p:5712-5726

DOI: 10.1016/j.physa.2012.06.036

Access Statistics for this article

Physica A: Statistical Mechanics and its Applications is currently edited by K. A. Dawson, J. O. Indekeu, H.E. Stanley and C. Tsallis

More articles in Physica A: Statistical Mechanics and its Applications from Elsevier
Bibliographic data for series maintained by Catherine Liu ().