Efficient Tests for General Persistent Time Variation in Regression Coefficients

Graham Elliott () and Ulrich K. Muller

The Review of Economic Studies, 2006, vol. 73, issue 4, 907-940

Abstract: There are a large number of tests for instability or breaks in coefficients in regression models designed for different possible departures from the stable model. We make two contributions to this literature. First, we consider a large class of persistent breaking processes that lead to asymptotically equivalent efficient tests. Our class allows for many or relatively few breaks, clustered breaks, regularly occurring breaks, or smooth transitions to changes in the regression coefficients. Thus, asymptotically nothing is gained by knowing the exact breaking process of the class. Second, we provide a test statistic that is simple to compute, avoids any need for searching over high dimensions when there are many breaks, is valid for a wide range of data-generating processes and has good power and size properties even in heteroscedastic models. Copyright 2006, Wiley-Blackwell.

Date: 2006
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