Breaks or long memory behavior: An empirical investigation

Lanouar Charfeddine and Dominique Guegan ()
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Dominique Guegan: PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique

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Abstract: Are structural break models true switching models or long memory processes? The answer to this question remains ambiguous. In recent years, many papers have dealt with this problem. Some studies have shown that, under specific conditions, switching models and long memory processes can easily be confused. In this paper, using several generating models (the mean-plus-noise model, the stochastic permanent break model, the Markov switching model, the threshold autoregressive (TAR) model, the sign model, and the structural change model) and several estimation techniques (the Geweke–Porter–Hudak (GPH) technique, detrended fluctuation analysis (DFA), the exact local Whittle (ELW) method, and wavelet methods) we show that, even if the answer is quite simple in some cases, it can be mitigated in other cases. Using French and American inflation rates, we found that the most appropriate process that takes into account the important features of these series is a model that simultaneously combines changes in regimes and long memory behavior. The main result of this study indicates that estimating a long memory parameter without taking into account the presence of breaks in the data sets may lead to misspecification and hence to overestimating the true parameter.

Keywords: Spurious long memory behavior; Structural break models; GPH; DFA; ELW; Wavelet; Inflation series (search for similar items in EconPapers)
Date: 2012-11
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Citations: View citations in EconPapers (3)

Published in Physica A: Statistical Mechanics and its Applications, 2012, 391 (22), pp.5712-5726. ⟨10.1016/j.physa.2012.06.036⟩

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Related works:
Journal Article: Breaks or long memory behavior: An empirical investigation (2012)
Working Paper: Breaks or long memory behavior: An empirical investigation (2012)
Working Paper: Breaks or long memory behaviour: an empirical investigation (2012)
Working Paper: Breaks or long memory behavior: An empirical investigation (2012)
Working Paper: Breaks or long memory behaviour: an empirical investigation (2012)
Working Paper: Breaks or Long Memory Behaviour: An empirical Investigation (2009)
Working Paper: Breaks or Long Memory Behaviour: An empirical Investigation (2009)
Working Paper: Breaks or long memory behaviour: An empirical investigation (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01314013

DOI: 10.1016/j.physa.2012.06.036

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