Power properties of the modified CUSUM tests

Peiyun Jiang () and Eiji Kurozumi

Communications in Statistics - Theory and Methods, 2019, vol. 48, issue 12, 2962-2981

Abstract: The CUSUM test has played an important role in theory and applications related to structural change, but its drawback is that it loses power when the break is orthogonal to the mean of the regressors. In this study, we consider two modified CUSUM tests that have been proposed, implicitly or explicitly, in the literature to detect such structural changes and investigate the limiting power properties of these tests under a fixed alternative. We demonstrate that the modified tests are superior to the classic tests in terms of both asymptotic theory and in finite samples when detecting an orthogonal structural shift.

Date: 2019
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Working Paper: Power Properties of the Modified CUSUM Tests (2017)
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DOI: 10.1080/03610926.2018.1473598

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