Bootstrap Tests for Structural Breaks When the Regressors and Error Term are Nonstationary

Dong Jin Lee ()

No 2011-05, Working papers from University of Connecticut, Department of Economics

Abstract: This paper considers tests for structural breaks in linear models when the regressors and the serially dependent error process are unstable. The set of models contains various economic circumstances such as the structural breaks in the regressors and/or the error variance, and a linear trend model with I(0)/I(1) error. We show that the existing heteroscedasticity robust tests and the fixed regressor bootstrap method of Hansen (2000) have severe size distortion problem even in the asymptotics. We suggest a method which combines the fixed regressor bootstrap and the sieve-wild bootstrap method to nonparametrically approximate the serially dependent unstable error process. The suggested method is shown to asymptotically replicates the true distribution of the existing tests under various circumstances. Monte Carlo experiments show significant improvements both in the size and the power properties. Once the size is controlled by the bootstrap, Wald type tests have better power properties relative to LM type tests.

Keywords: Structural break; sieve bootstrap; fixed regressor bootstrap; robust test; break in linear trend (search for similar items in EconPapers)
JEL-codes: C10 C12 C22 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2011-03
New Economics Papers: this item is included in nep-ecm and nep-ets
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://media.economics.uconn.edu/working/2011-05.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:uct:uconnp:2011-05

Access Statistics for this paper

More papers in Working papers from University of Connecticut, Department of Economics University of Connecticut 365 Fairfield Way, Unit 1063 Storrs, CT 06269-1063. Contact information at EDIRC.
Bibliographic data for series maintained by Mark McConnel ().