Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5097149 | Journal of Econometrics | 2007 | 23 Pages |
Abstract
This paper considers the problem of constructing confidence sets for the date of a single break in a linear time series regression. We establish analytically and by small sample simulation that the current standard method in econometrics for constructing such confidence intervals has a coverage rate far below nominal levels when breaks are of moderate magnitude. Given that breaks of moderate magnitude are a theoretically and empirically relevant phenomenon, we proceed to develop an appropriate alternative. We suggest constructing confidence sets by inverting a sequence of tests. Each of the tests maintains a specific break date under the null hypothesis, and rejects when a break occurs elsewhere. By inverting a certain variant of a locally best invariant test, we ensure that the asymptotic critical value does not depend on the maintained break date. A valid confidence set can hence be obtained by assessing which of the sequence of test statistics exceeds a single number.
Keywords
Related Topics
Physical Sciences and Engineering
Mathematics
Statistics and Probability
Authors
Graham Elliott, Ulrich K. Müller,