A cusum and cusumsq tests we may have no strong prior

This preview shows page 15 out of 19 pages.

A. CUSUM and CUSUMSQ tests We may have no strong prior knowledge of specific structural breaks. Another method used to avoid arbitrary breakpoints (structural change points) is based on recursive estimation . This involves estimating the equation by OLS; starting with a small sample and allow the data period to increase by one period each estimate. It therefore produces a time series of estimates for the coefficients. These can be plotted with confidence intervals. Under the null hypothesis of parameter stability CUSUM should have zero mean and variance approximately equal to the number of normalised residuals being summed. Reject the null hypothesis of parameter stability if the CUSUM plot cross's any of the two lines. 5
Image of page 15

You've reached the end of your free preview.

Want to read all 19 pages?

{[ snackBarMessage ]}

Get FREE access by uploading your study materials

Upload your study materials now and get free access to over 25 million documents.

Upload now for FREE access Or pay now for instant access
Christopher Reinemann
"Before using Course Hero my grade was at 78%. By the end of the semester my grade was at 90%. I could not have done it without all the class material I found."
— Christopher R., University of Rhode Island '15, Course Hero Intern

Ask a question for free

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern