Structural Breaks

John D. Levendis
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John D. Levendis: Loyola University New Orleans

Chapter Chapter 8 in Time Series Econometrics, 2023, pp 175-199 from Springer

Abstract: Abstract In 1979 Robet Lucas offered his famous “critique”: the economic parameters we estimate are not permanent and unchanging. They depend on the institutional framework in place at the time. Changes in economic policy—or of laws, regulations or geopolicics—affect not just the outcome of the economic process; they change the economic process itself. Therefore the parameters describing a structurally different economy will be different. Lucas, in effect, argued that econometrics should contend with “structural breaks,” the topic of this chapter. If practicing econometricians attempt to fit years’ worth of data to one unchanging model, they are likely committing a serious misspecification error. We need an econometric model that allows parameters to change. In this chapter, we explore the consequences of structural change and learn how to model it, especially when dealing with the related problem of unit roots. Along the way, we replicate the papers by Perron (1989) and Zivot and Andrews (1992), two seminal papers that established the econometrics of structural change.

Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sptchp:978-3-031-37310-7_8

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DOI: 10.1007/978-3-031-37310-7_8

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