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Testing for structural change in the dynamic adjustment model with autoregressive errors

Kien Tran ()

Empirical Economics, 1999, vol. 24, issue 1, 76 pages

Abstract: The dynamic CUSUM test for structural change proposed by KrÄmer, Ploberger and Alt (1988) is investigated when the errors are serially correlated in a linear dynamic model. We show that the dynamic CUSUM test can be modified to allow for serial correlation in the disturbance using the same procedure as in Kao and Ross (1995), and that the modified dynamic CUSUM test retains its asymptotic significance levels. Monte Carlo results suggest that the empirical size of the dynamic CUSUM test is highly distorted while the empirical size of the modified dynamic CUSUM test is fairly robust to the change on the degree of autocorrelation. We also find that the power of the modified test essentially depends on the angle between the mean regressors and the structural shift.

Keywords: Autocorrelation; ·; Dynamic; cusum; ·; Structural; change (search for similar items in EconPapers)
JEL-codes: C12 C22 (search for similar items in EconPapers)
Date: 1999-02-11
Note: received: April 1997/Final version received: January 1998
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