Monitoring structural change in variance

Frédéric Carsoule and Philip Hans Franses

No EI 9925A, Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute

Abstract: In this paper we propose a sequential testing approach for a structural change in the variance of a time series, which amounts to a procedure with a controlled asymptotic size as we repeat the test. Our approach builds on that taken in Chu, Stinchcombe and White (1996) for structural change in the parameters of a linear regression model. We provide simulation evidence to examine the empirical size and power of our procedure. We apply our approach to 14 weekly observed European exchange rates for 1985-1998 and we find ample evidence for the presence of structural changes in nominal exchange rate volatility, where generally a reduction of volatility is found.

Keywords: exchange rate volatility; monitoring procedure; structural change; variance (search for similar items in EconPapers)
Date: 1999-06-23
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ems:eureir:1596

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