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Alastair Hall, Manchester Print
Thursday, 13 October 2011, 12:15 - 13:15

Alastair Hall, Manchester University

Testing for Structural Instability in Moment Restriction Models: an Info-metric Approach

Abstract:

In this paper, we develop an info-metric framework for testing hypotheses about structural instability in nonlinear, dynamic models estimated from the information in population moment conditions. Our methods are designed to distinguish between three states of the world: (i) the model is structurally stable in the sense that the population moment condition holds at the same parameter value throughout the sample; (ii) the model parameters change at some point in the sample but otherwise the model is correctly specified; iii) the model exhibits more general forms of instability than a single shit in the parameters. An advantage of the info-metric approach is that the null hypotheses concerned are formulated in terms of distances between various choices of probability measures constrained to satisfy (i) and (ii) and the empirical measure of the sample. Under the alternative hypotheses considered, the model is assumed to exhibit structural instability at a single point in the sample, referred to as the break point; our analysis allows for the break point to be either fixed a priori or treated as occuring at some unknown point within a certain fraction of the sample.

We propose various test statistics that can be thought of as sample analogs of the distances described above, and derive their limiting distributions under the appropriate null hypothesis. In principle, there are a number of possible measures of distance that can be used in this context but we focus on the measure associated with Empirical Likelihood estimation. The limiting distributions of our statistics are non-standard but coincide with various distributions that arise in the literature on structural instability testing within the Generalized Method of Moments framework. A small simulation study illustrates the finite sample performance of our test statistics.

Location: R42.2.113
Contact: Claude Adan, This e-mail address is being protected from spam bots, you need JavaScript enabled to view it

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