MULTIVARIATE METHODS FOR MONITORING STRUCTURAL CHANGE. (9th October 2011)

• Record Type: Journal Article
• Authors: Groen, Jan J. J.; Kapetanios, George; Price, Simon
• Is Part Of: Journal of applied econometrics. Volume 28:Number 2(2013)
• Page Start: 250
• Page End: 274
• Publication Date: 2011-10-09
• Subjects: Econometrics -- Periodicals; 330.015195
• DOI: 10.1002/jae.1272
• Languages: English
• ISSNs: 0883-7252

Abstract

<abstract abstract-type="main"> <title>SUMMARY</title> <p>Detection of structural change is a critical empirical activity, but continuous 'monitoring' for changes in real time raises well‐known econometric issues that have been explored in a single series context. If multiple series co‐break then it is possible that simultaneous examination of a set of series helps identify changes with higher probability or more rapidly than when series are examined on a case‐by‐case basis. Some asymptotic theory is developed for maximum and average CUSUM detection tests. Monte Carlo experiments suggest that these both provide an improvement in detection relative to a univariate detector over a wide range of experimental parameters, given a sufficiently large number of co‐breaking series. This is robust to a cross‐sectional correlation in the errors (a factor structure) and heterogeneity in the break dates. We apply the test to a panel of UK price indices. Copyright © 2011 John Wiley &amp; Sons, Ltd.</p> </abstract>