Abstract
We develop a sequential testing approach for a structural change in the parameters of an autoregression, which amounts to an adaptation of the monitoring procedure, outlined in Chu, Stichcombe and White (1996). This procedure has a controlled asymptotic size as one repeats the test. Our method can be used as a general misspecification test. We apply our method to monthly US industrial production in order to investigate if its autoregressive behavior and/or its innovation variance have changed during the twentieth century.
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References
Chu CSJ, Stinchcombe M, White H (1996) Monitoring structural change. Econometrica 64:1045–1065
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We thank an anonymous referee for several helpful comments.
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Carsoule, F., Franses, P.H. A note on monitoring time-varying parameters in an autoregression. Metrika 57, 51–62 (2003). https://doi.org/10.1007/s001840200198
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DOI: https://doi.org/10.1007/s001840200198