Estimating and Testing Multiple Structural Changes in Models with Endogenous Regressors

Pierre Perron and Yohei Yamamoto

No wp2008-017, Boston University - Department of Economics - Working Papers Series from Boston University - Department of Economics

Abstract: We consider the problem of estimating and testing for multiple breaks in a single equation framework with regressors that are endogenous, i.e., correlated with the errors. First, we show based on standard assumptions about the regressors, instruments and errors that the second stage regression of the instrumental variable (IV) procedure involves regressors and errors that satisfy all the assumptions in Perron and Qu (2006) so that the results about consistency, rate of convergence and limit distributions of the estimates of the break dates, as well as the limit distributions of the tests, are obtained as simple consequences. More importantly from a practical perspective, we show that even in the presence of endogenous regressors, it is still preferable to simply estimate the break dates and test for structural change using the usual ordinary least-squares (OLS) framework. It delivers estimates of the break dates with higher precision and tests with higher power compared to those obtained using an IV method. To illustrate the relevance of our theoretical results, we consider the stability of the New Keynesian hybrid Phillips curve. IV-based methods do not indicate any instability. On the other hand, OLS-based ones strongly indicate a change in 1991:1 and that after this date the model looses all explanatory power.

Keywords: structural change; instrument variables; two-stage least-squares; parameter variations (search for similar items in EconPapers)
JEL-codes: C22 (search for similar items in EconPapers)
Pages: 33
Date: 2008-10
New Economics Papers: this item is included in nep-ecm and nep-ets
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bos:wpaper:wp2008-017

Access Statistics for this paper

More papers in Boston University - Department of Economics - Working Papers Series from Boston University - Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Program Coordinator ().