Timing structural change: a conditional probabilistic approach

David DeJong (dejong@pitt.edu), Roman Liesenfeld and Jean-Francois Richard
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Roman Liesenfeld: Department of Economics, Universität Kiel, Germany, Postal: Department of Economics, Universität Kiel, Germany

Journal of Applied Econometrics, 2006, vol. 21, issue 2, 175-190

Abstract: We propose a strategy for assessing structural stability in time-series frameworks when potential change dates are unknown. Existing stability tests are effective in detecting structural change, but procedures for identifying timing are imprecise, especially in assessing the stability of variance parameters. We present a likelihood-based procedure for assigning conditional probabilities to the occurrence of structural breaks at alternative dates. The procedure is effective in improving the precision with which inferences regarding timing can be made. We illustrate parametric and non-parametric implementations of the procedure through Monte Carlo experiments, and an assessment of the volatility reduction in the growth rate of US GDP. Copyright © 2006 John Wiley & Sons, Ltd.

Date: 2006
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DOI: 10.1002/jae.821

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