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Structural Breaks (structural + break)

Distribution by Scientific Domains

Business, Economics, Finance and Accounting	73%
Humanities and Social Sciences	9%

Distribution within Business, Economics, Finance and Accounting

General & Introductory Economics	63%
Econometrics	26%
3 Other Subdomains	11%

Selected Abstracts

INVESTIGATING OKUN's LAW BY THE STRUCTURAL BREAK WITH THRESHOLD APPROACH: EVIDENCE FROM CANADA,

THE MANCHESTER SCHOOL, Issue 5 2005
HO-CHUAN (RIVER) HUANG
This study proposes a structural change with threshold approach to re-evaluate the empirical validity of Okun's law using data from Canada. Based on the Hodrick,Prescott and band-pass filtered data, we find strong support of structural change as well as threshold nonlinearity. This suggests that the use of purely linear specifications for analyzing Okun's law may lead to misleading results. The implications of the empirical results for macroeconomic policy are also briefly discussed. [source]

FURTHER COMMENTS ON STATIONARITY TESTS IN SERIES WITH STRUCTURAL BREAKS AT UNKNOWN POINTS

JOURNAL OF TIME SERIES ANALYSIS, Issue 2 2003
Fabio Busetti
First page of article [source]

HYSTERESIS IN UNEMPLOYMENT REVISITED: EVIDENCE FROM PANEL LM UNIT ROOT TESTS WITH HETEROGENEOUS STRUCTURAL BREAKS

BULLETIN OF ECONOMIC RESEARCH, Issue 4 2009
Jun-De Lee
C22; C23; J64 ABSTRACT This paper applies the panel LM unit root tests with heterogeneous structural breaks in level by Im,et al. (Oxford Bulletin of Economics and Statistics, 67 (2005), pp. 393,419) to re-examine the validity of hysteresis in the unemployment rates of 19 OECD countries. Our empirical findings are favourable to the stationarity of the unemployment rates, i.e., the unemployment hysteresis hypothesis is strongly rejected. Our results suggest that shocks to unemployment rates are temporary and soon converge when we control for breaks. A major policy implication of the study is that a fiscal or monetary stabilization policy would not have permanent effects on the unemployment rates of the 19 OECD countries. [source]

New Improved Tests for Cointegration with Structural Breaks

JOURNAL OF TIME SERIES ANALYSIS, Issue 2 2007
Joakim Westerlund
C12; C32; C33 Abstract., This article proposes Lagrange multiplier-based tests for the null hypothesis of no cointegration. The tests are general enough to allow for heteroskedastic and serially correlated errors, deterministic trends, and a structural break of unknown timing in both the intercept and slope. The limiting distributions of the test statistics are derived, and are found to be invariant not only with respect to the trend and structural break, but also with respect to the regressors. A small Monte Carlo study is also conducted to investigate the small-sample properties of the tests. The results reveal that the tests have small size distortions and good power relative to other tests. [source]

Range Unit-Root (RUR) Tests: Robust against Nonlinearities, Error Distributions, Structural Breaks and Outliers

JOURNAL OF TIME SERIES ANALYSIS, Issue 4 2006
Felipe Aparicio
Abstract., Since the seminal paper by Dickey and Fuller in 1979, unit-root tests have conditioned the standard approaches to analysing time series with strong serial dependence in mean behaviour, the focus being placed on the detection of eventual unit roots in an autoregressive model fitted to the series. In this paper, we propose a completely different method to test for the type of long-wave patterns observed not only in unit-root time series but also in series following more complex data-generating mechanisms. To this end, our testing device analyses the unit-root persistence exhibited by the data while imposing very few constraints on the generating mechanism. We call our device the range unit-root (RUR) test since it is constructed from the running ranges of the series from which we derive its limit distribution. These nonparametric statistics endow the test with a number of desirable properties, the invariance to monotonic transformations of the series and the robustness to the presence of important parameter shifts. Moreover, the RUR test outperforms the power of standard unit-root tests on near-unit-root stationary time series; it is invariant with respect to the innovations distribution and asymptotically immune to noise. An extension of the RUR test, called the forward,backward range unit-root (FB-RUR) improves the check in the presence of additive outliers. Finally, we illustrate the performances of both range tests and their discrepancies with the Dickey,Fuller unit-root test on exchange rate series. [source]

Seasonal Unit Root Tests Under Structural Breaks,

JOURNAL OF TIME SERIES ANALYSIS, Issue 1 2004
Uwe Hassler
C12; C22 Abstract., In this paper, several seasonal unit root tests are analysed in the context of structural breaks at known time and a new break corrected test is suggested. We show that the widely used HEGY test, as well as an LM variant thereof, are asymptotically robust to seasonal mean shifts of finite magnitude. In finite samples, however, experiments reveal that such tests suffer from severe size distortions and power reductions when breaks are present. Hence, a new break corrected LM test is proposed to overcome this problem. Importantly, the correction for seasonal mean shifts bears no consequence on the limiting distributions, thereby maintaining the legitimacy of canonical critical values. Moreover, although this test assumes a breakpoint a priori, it is robust in terms of misspecification of the time of the break. This asymptotic property is well reproduced in finite samples. Based on a Monte-Carlo study, our new test is compared with other procedures suggested in the literature and shown to hold superior finite sample properties. [source]

Cointegration Testing Under Structural Breaks: A Robust Extended Error Correction Model

OXFORD BULLETIN OF ECONOMICS & STATISTICS, Issue 1 2000
Miguel A. Arranz
First page of article [source]

Convergence in West German Regional Unemployment Rates

GERMAN ECONOMIC REVIEW, Issue 4 2007
Christian Bayer
Stochastic convergence; unemployment; structural break; unit root Abstract. Differences in regional unemployment rates are often used to describe regional economic inequality. This paper asks whether changes in regional unemployment differences in West Germany are persistent over time. Understanding the persistency of regional unemployment differences helps us to assess how effective regional policy can be. While univariate tests suggest that changes in regional unemployment differences are persistent in West Germany, more powerful panel tests lend some support to the hypothesis that regional unemployment rates converge. However, these tests reveal a moderate speed of convergence at best. Because there is a structural break following the second oil crisis, we also use tests that allow for such a break. This provides evidence for both convergence and quick adjustment to an equilibrium distribution of regional unemployment rates that is, however, subject to a structural break. [source]

Measuring Monetary Policy in Germany: A Structural Vector Error Correction Approach

GERMAN ECONOMIC REVIEW, Issue 3 2003
Imke Brüggemann
Monetary policy; cointegration; structural VAR analysis Abstract. A structural vector error correction (SVEC) model is used to investigate several monetary policy issues. While being data-oriented the SVEC framework allows structural modeling of the short-run and long-run properties of the data. The statistical model is estimated with monthly German data for 1975,98 where a structural break is detected in 1984. After splitting the sample, three stable long-run relations are found in each subsample which can be interpreted in terms of a money-demand equation, a policy rule and a relation for real output, respectively. Since the cointegration restrictions imply a particular shape of the long-run covariance matrix this information can be used to distinguish between permanent and transitory innovations in the estimated system. Additional restrictions are introduced to identify a monetary policy shock. [source]

Asymmetries in Transatlantic Monetary Policy-making: Does the ECB Follow the Fed?,

JCMS: JOURNAL OF COMMON MARKET STUDIES, Issue 5 2005
ANSGAR BELKE
The belief that the European Central Bank (ECB) follows the US Federal Reserve (the Fed) in setting its policy is so entrenched with market participants and commentators that the search for empirical support would seem to be a trivial task. However, this is not the case. We find that the ECB is indeed often influenced by the Fed, but the reverse is true at least as often if one considers longer sample periods. There is empirically little support for the proposition that there has for a long time been a systematic asymmetric leader-follower relationship between the ECB and the Fed. Only after September 2001 is there more evidence of such an asymmetry. There is a clear-cut structural break between the period pre-economic and monetary union (EMU) and EMU itself in terms of the relationship between short-term interest rates on both sides of the Atlantic. [source]

New Improved Tests for Cointegration with Structural Breaks

Is There a Natural Rate of Crime?

AMERICAN JOURNAL OF ECONOMICS AND SOCIOLOGY, Issue 2 2010
Paresh Kumar Narayan
Studies in the economics of crime literature have reached mixed conclusions on the deterrence hypothesis. One explanation that has been offered for the failure to find evidence of a deterrent effect in the long run is the natural rate of crime. This article applies univariate unit root tests to crime series for the United Kingdom and United States and panel unit roots to crime rates for a panel of G7 countries to examine whether there is a natural rate of crime. Our main finding is that when we allow for two structural breaks in the univariate unit root test and a structural break in the panel data unit root test, there is strong evidence of a natural rate of crime. The policy implications of our findings is that governments should focus on altering the economic and social structural profile that determines crime in the long run rather than increasing expenditure on law enforcement that will at best reduce crime rates in the short run. [source]

ARE OUTPUT FLUCTUATIONS TRANSITORY?

PACIFIC ECONOMIC REVIEW, Issue 4 2004
NEW EVIDENCE FROM 24 CHINESE PROVINCES
We examine this issue for 24 Chinese provinces using the recently developed Lagrange multiplier panel unit root test which allows for a structural break. Our main finding is that real gross domestic product (GDP) and real GDP per capita for Chinese provinces are stationary fluctuations around a deterministic trend. [source]

Joint hypothesis specification for unit root tests with a structural break,

THE ECONOMETRICS JOURNAL, Issue 2 2006
Josep Lluís Carrion-i-Silvestre
Summary, Several tests based on a t -ratio have been proposed in the literature to decide the order of integration of a time series allowing for a structural break. However, another approach based on testing a joint hypothesis of unit root and the irrelevance of some nuisance parameters is also feasible. This paper proposes new unit root tests consistent with the presence of a structural break applying this second perspective. Our approach deals both with the case where the break is not allowed under the null hypothesis, and where it is allowed. Simulations investigate the performance of this proposal compared to the existing tests and show important gains in terms of power. [source]

Least squares estimation and tests of breaks in mean and variance under misspecification

THE ECONOMETRICS JOURNAL, Issue 1 2004
Jean-Yves Pitarakis
Summary In this paper we investigate the consequences of misspecification on the large sample properties of change-point estimators and the validity of tests of the null hypothesis of linearity versus the alternative of a structural break. Specifically this paper concentrates on the interaction of structural breaks in the mean and variance of a time series when either of the two is omitted from the estimation and inference procedures. Our analysis considers the case of a break in mean under omitted-regime-dependent heteroscedasticity and that of a break in variance under an omitted mean shift. The large and finite sample properties of the resulting least-squares-based estimators are investigated and the impact of the two types of misspecification on inferences about the presence or absence of a structural break subsequently analysed. [source]

Forecasting Substantial Data Revisions in the Presence of Model Uncertainty,

THE ECONOMIC JOURNAL, Issue 530 2008
Anthony Garratt
A recent revision to the preliminary measurement of GDP(E) growth for 2003Q2 caused considerable press attention, provoked a public enquiry and prompted a number of reforms to UK statistical reporting procedures. In this article, we compute the probability of ,substantial revisions' that are greater (in absolute value) than the controversial 2003 revision. The predictive densities are derived from Bayesian model averaging over a wide set of forecasting models including linear, structural break and regime-switching models with and without heteroscedasticity. Ignoring the nonlinearities and model uncertainty yields misleading predictives and obscures recent improvements in the quality of preliminary UK macroeconomic measurements. [source]

MEAN REVERSION OF THE FISCAL CONDUCT IN 24 DEVELOPING COUNTRIES

THE MANCHESTER SCHOOL, Issue 4 2010
AHMAD ZUBAIDI BAHARUMSHAH
In this paper, we examine the mean reverting behaviour of fiscal deficit by analysing the fiscal position of 24 developing countries. Using annual data over the period 1970,2003 and the series-specific panel unit root test developed by Breuer et al. (Oxford Bulletin of Economics and Statistics, Vol. 64 (2002), pp. 527,546), we found the budget process for most developing countries fails to satisfy the strong-form sustainability condition. Further investigation shows the budget process for a majority of the countries is on a sustainable path (weak form) when a one-time, structural break is allowed in the model. Therefore, our empirical results suggest that the budget process in most of the sample countries is in accordance with the intertemporal budget constraint. [source]

THE DECLINE IN THE VOLATILITY OF THE BUSINESS CYCLES IN THE UK

THE MANCHESTER SCHOOL, Issue 2008
CHRISTINA V. ATANASOVA
We analyse the sources of the decline of business cycle volatility in the UK using a dynamic factor model that allows for the presence of a structural break in the conditional mean and variance of output, sales, income and unemployment. We augment the factor model with an economic component to investigate the role of structural changes and improved monetary policy in the volatility decline of the series. Our results suggest that the dominant cause for the observed volatility decline is the reduced variability of shocks. [source]

Dynamics of Capital Structure: The Case of Korean Listed Manufacturing Companies,

ASIAN ECONOMIC JOURNAL, Issue 3 2006
Hyesung Kim
C33; D21; G32 In this paper, we develop a model of dynamic capital structure choice based on a sample of Korean manufacturing firms and estimate the unobservable optimal capital structure using a wide range of observable determinants. Unbalanced panel data of Korean listed firms for the period 1985,2002 is used. In addition to identifying and estimating the effects of the determinants of capital structure, we take into consideration some Korea-specific features, such as the structural break before and after the financial crisis and firms' affiliation to chaebol business groups. Our results indicate that the optimal capital structure has been affected by the financial crisis. Although the results suggest that chaebol-affiliated firms have higher optimal level of leverage and adjust their capital structure faster than non-chaebol firms, firms' leverage might be associated with factors other than chaebol-affiliation, such as size, profitability and growth opportunity. [source]

THE AGRICULTURAL TERMS OF TRADE IN BANGLADESH: AN ECONOMETRIC ANALYSIS OF TRENDS AND MOVEMENTS, 1952,2006

AUSTRALIAN ECONOMIC PAPERS, Issue 1 2008
AKHAND AKHTAR HOSSAINArticle first published online: 21 APR 200
This paper investigates the trends and movements of agricultural prices, industrial prices and the agricultural terms of trade in Bangladesh with annual data for the period 1952,2006. The ADF and KPSS tests results suggest that both agricultural and industrial prices have a unit root while the agricultural terms of trade is trend-stationary. These results remain unchanged if allowance is made in the unit root test for the possibility of a structural break during 1971,1975 (when Bangladesh gained independence from Pakistan and experienced economic shocks) by applying the two-step procedure of Perron (1989). A simple Nerlovian agricultural price determination model is specified within the framework of aggregate demand and aggregate supply. The Johansen cointegration test results for the periods 1953,2006 and 1973,2006 suggest that there exists a cointegral relationship between agricultural prices, industrial prices, per-capita real income and the real exchange rate between the Bangladeshi taka and the US dollar under the restriction that per-capita real income and the real exchange rate are ,long-run forcing variables' in the sense of Pesaran and Shin (1995), and Pesaran, Shin and Smith (1996). The paper estimates a four-variable vector error-correction (VEC) model and conducts an impulse response analysis for the post-independence period, 1973,2006. [source]

THE UNEMPLOYMENT PARADIGMS REVISITED: A COMPARATIVE ANALYSIS OF U.S. STATE AND EUROPEAN UNEMPLOYMENT

CONTEMPORARY ECONOMIC POLICY, Issue 3 2009
DIEGO ROMERO-ÁVILA
This article tests the main unemployment paradigms for the unemployment rates of the states of the United States and the European Union,15 countries over the past three decades. For that purpose, we employ a state-of-the-art panel stationarity test, which allows for an unknown number of endogenous structural breaks as well as for cross-sectional correlation. Overall, our analysis renders clear-cut evidence in favor of regime-wise stationarity in U.S. state unemployment, while hysteresis in European unemployment. Interestingly, the timing of the breaks broadly coincides with major macroeconomic shocks mainly associated with the oil crises of the 1970s and marked changes in interest rates in the 1980s and early 1990s. Based on our results, we draw some policy prescriptions that point to the need for greater flexibility in the European labor markets. (JEL C23, E24) [source]

TWIN SONS OF DIFFERENT MOTHERS: THE LONG AND THE SHORT OF THE TWIN DEFICITS DEBATE

ECONOMIC INQUIRY, Issue 4 2009
KEVIN GRIER
Interest in the twin deficits hypothesis fluctuates in tandem with the U.S. current account deficit. Surprisingly though, a statistically robust relationship between budget and trade deficits has been difficult to pin down. We argue that a big part of this difficulty is due to the failure to allow for structural breaks in the series when (either explicitly or implicitly) modeling their time series properties. We show that both series are break stationary (and conditionally heteroskedastic) and argue that while there is no common pattern in the long run, the short-run dynamics reveal a sizeable and fairly persistent positive relationship between budget deficit shocks and current account deficit shocks. (JEL F41, E6, H6) [source]

Do health expenditures ,catch-up'?

HEALTH ECONOMICS, Issue 10 2007
Evidence from OECD countries
Abstract In this paper, we examine the ,catch-up' hypothesis, that is, whether or not per capita health expenditures of the UK, Canada, Japan, Switzerland, and Spain converge to the per capita health expenditures of the USA over the period 1960,2000. We propose a framework to examine convergence of health expenditures and use recent developments in unit root testing, namely the Lagrange multiplier univariate and panel approaches that allow for at most two structural breaks. Our main finding is that while univariate and panel tests that do not incorporate structural breaks fail to find evidence of convergence, univariate and panel LM tests that allow for structural breaks find strong evidence of convergence of per capita health expenditures of the UK, Canada, Japan, Switzerland, and Spain to that of the USA. Copyright © 2007 John Wiley & Sons, Ltd. [source]

Realising the future: forecasting with high-frequency-based volatility (HEAVY) models

JOURNAL OF APPLIED ECONOMETRICS, Issue 2 2010
Professor Neil Shephard
This paper studies in some detail a class of high-frequency-based volatility (HEAVY) models. These models are direct models of daily asset return volatility based on realised measures constructed from high-frequency data. Our analysis identifies that the models have momentum and mean reversion effects, and that they adjust quickly to structural breaks in the level of the volatility process. We study how to estimate the models and how they perform through the credit crunch, comparing their fit to more traditional GARCH models. We analyse a model-based bootstrap which allows us to estimate the entire predictive distribution of returns. We also provide an analysis of missing data in the context of these models. Copyright © 2010 John Wiley & Sons, Ltd. [source]

Learning, forecasting and structural breaks

JOURNAL OF APPLIED ECONOMETRICS, Issue 5 2008
John M. Maheu
We provide a general methodology for forecasting in the presence of structural breaks induced by unpredictable changes to model parameters. Bayesian methods of learning and model comparison are used to derive a predictive density that takes into account the possibility that a break will occur before the next observation. Estimates for the posterior distribution of the most recent break are generated as a by-product of our procedure. We discuss the importance of using priors that accurately reflect the econometrician's opinions as to what constitutes a plausible forecast. Several applications to macroeconomic time-series data demonstrate the usefulness of our procedure. Copyright © 2008 John Wiley & Sons, Ltd. [source]

Timing structural change: a conditional probabilistic approach

JOURNAL OF APPLIED ECONOMETRICS, Issue 2 2006
David N. DeJong
We propose a strategy for assessing structural stability in time-series frameworks when potential change dates are unknown. Existing stability tests are effective in detecting structural change, but procedures for identifying timing are imprecise, especially in assessing the stability of variance parameters. We present a likelihood-based procedure for assigning conditional probabilities to the occurrence of structural breaks at alternative dates. The procedure is effective in improving the precision with which inferences regarding timing can be made. We illustrate parametric and non-parametric implementations of the procedure through Monte Carlo experiments, and an assessment of the volatility reduction in the growth rate of US GDP. Copyright © 2006 John Wiley & Sons, Ltd. [source]

Can forecasting performance be improved by considering the steady state?

JOURNAL OF FORECASTING, Issue 1 2008
An application to Swedish inflation, interest rate
Abstract This paper investigates whether the forecasting performance of Bayesian autoregressive and vector autoregressive models can be improved by incorporating prior beliefs on the steady state of the time series in the system. Traditional methodology is compared to the new framework,in which a mean-adjusted form of the models is employed,by estimating the models on Swedish inflation and interest rate data from 1980 to 2004. Results show that the out-of-sample forecasting ability of the models is practically unchanged for inflation but significantly improved for the interest rate when informative prior distributions on the steady state are provided. The findings in this paper imply that this new methodology could be useful since it allows us to sharpen our forecasts in the presence of potential pitfalls such as near unit root processes and structural breaks, in particular when relying on small samples.,,Copyright © 2008 John Wiley & Sons, Ltd. [source]

The New Keynesian Phillips Curve: From Sticky Inflation to Sticky Prices

JOURNAL OF MONEY, CREDIT AND BANKING, Issue 4 2008
CHENGSI ZHANG
New Keynesian Phillips Curve; inflation survey forecasts; sticky prices; structural breaks; monetary policy The New Keynesian Phillips Curve (NKPC) model of inflation dynamics based on forward-looking expectations is of great theoretical significance in monetary policy analysis. Empirical studies, however, often find that backward-looking inflation inertia dominates the dynamics of the short-run aggregate supply curve. This inconsistency is examined by investigating multiple structural changes in the NKPC for the U.S. between 1960 and 2005, employing both inflation expectations survey data and a rational expectations approximation. We find that forward-looking behavior plays a smaller role during the high and volatile inflation regime to 1981 than in the subsequent period of moderate inflation, providing empirical support for sticky price models over the last two decades. A break in the intercept of the NKPC is also identified around 2001 and this may be associated with U.S. monetary policy in that period. [source]