Testing for Structural Change of Predictive Regression Model to Threshold Predictive Regression Model

Fukang Zhu, Mengya Liu, Shiqing Ling and Zongwu Cai
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Fukang Zhu: School of Mathematics, Jilin University, Changchun, Jilin 130012, China
Mengya Liu: School of Mathematics, Jilin University, Changchun, Jilin 130012, China
Shiqing Ling: Department of Mathematics, Hong Kong University of Science and Technology, Hong Kong, China
Zongwu Cai: Department of Economics, The University of Kansas, Lawrence, KS 66045, USA

No 202021, WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS from University of Kansas, Department of Economics

Abstract: This paper investigates two test statistics for structural changes and thresh- olds in predictive regression models. The generalized likelihood ratio (GLR) test is proposed for the stationary predictor and the generalized F test is suggested for the unit root predictor. Under the null hypothesis of no structural change and threshold, it is shown that the GLR test statistic converges to a function of a centered Gaussian process, and the generalized F test statistic converges to a function of Brownian motions. A Bootstrap method is proposed to obtain the critical values of test statistics. Simulation studies and a real example are given to assess the performances of the tests.

Keywords: Bootstrap method, Generalized F-test; Generalized likelihood ratio test; Predictive regression, Structural change, Threshold model. (search for similar items in EconPapers)
JEL-codes: C12 C22 C58 G12 (search for similar items in EconPapers)
Date: 2020-12, Revised 2020-12
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ore
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