Step-indicator Saturation

David Hendry, Jurgen Doornik and Felix Pretis

No 658, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: Using an extension of general-to-specific modelling, based on the recent developments of impulse-indicator saturation (IIS), we consider selecting significant step indicators from a saturating set to capture location shifts. The approximate non-centrality of the test is derived for a variety of shifts using a 'split-half' analysis, the simplest specialization of a multiple-block search algorithm. Monte Carlo simulations confirm the accuracy of the nominal significance levels under the null, and show rejections when location shifts occur, improving in non-null rejection frequency compared to the corresponding IIS-based and to Chow (1960) tests.

Keywords: General-so-specific; step-indicator saturation; test power; location shifts; model section; Autometrics (search for similar items in EconPapers)
JEL-codes: C22 C51 (search for similar items in EconPapers)
Date: 2013-06-06
New Economics Papers: this item is included in nep-cmp and nep-ecm
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Citations: View citations in EconPapers (26)

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