Inference Related to Locally Ordered and Common Breaks in a Multivariate System with Joined Segmented Trends

Ye Li and Pierre Perron
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Ye Li: Boston University

No 2013-010, Boston University - Department of Economics - Working Papers Series from Boston University - Department of Economics

Abstract: The issues addressed in this paper are related to testing for common breaks and constructing conÖdence intervals for locally ordered breaks in bivariate linear time trend regressions with changes in the slopes such that series are joined at the break dates. The common break test considered is a likelihood ratio type test. The null hypothesis is that one of the break dates from one series is common with one of the break dates from the other one, while the alternative hypothesis is that the breaks dates are not the same and need not be separated by a positive fraction of the sample size. In both cases, the estimation method is quasi-maximum likelihood. We provide results about the consistency, rate of convergence and asymptotic distribution of the test statistic and about the limit distribution of the estimates of the locally ordered break dates. Simulation results show that both the test and the coverage rate provided by the limit distribution have good Önite sample properties.

Keywords: Locally Ordered Breaks; Common Breaks; Multiple Regressions; Joined Segmented Trend. (search for similar items in EconPapers)
Pages: 24
Date: 2013-10
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