Tests for Parameter Instability and Structural Change With Unknown Change Point

TLDR

The study applies to a broad class of parametric models estimable via generalized method of moments. The paper develops tests for parameter instability and structural change when the change point is unknown. The tests’ asymptotic distributions are nonstandard, as the change‑point parameter appears only under the alternative. The tests exhibit nontrivial asymptotic local power against all nonconstant‑parameter alternatives and perform well in Monte Carlo experiments. © 1993 The Econometric Society.

Abstract

This paper considers tests for parameter instability and structural change with unknown change point. The results apply to a wide class of parametric models that are suitable for estimation by generalized method of moments procedures. The asymptotic distributions of the test statistics considered here are nonstandard because the change point parameter only appears under the alternative hypothesis and not under the null. The tests considered here are shown to have nontrivial asymptotic local power against all alternatives for which the parameters are nonconstant. The tests are found to perform quite well in a Monte Carlo experiment reported elsewhere. Copyright 1993 by The Econometric Society.