Inference regarding multiple structural changes in linear models estimated via two stage least squares

Hall, Alastair R. and Han, Sanggohn and Boldea, Otilia (2008): Inference regarding multiple structural changes in linear models estimated via two stage least squares.

Abstract

In this paper, we extend Bai and Perron’s (1998, Econometrica, p.47-78) framework for multiple break testing to linear models estimated via Two Stage Least Squares (2SLS). Within our framework, the break points are estimated simultaneously with the regression parameters via minimization of the residual sum of squares on the second step of the 2SLS estimation. We establish the consistency of the resulting estimated break point fractions. We show that various F-statistics for structural instability based on the 2SLS estimator have the same limiting distribution as the analogous statistics for OLS considered by Bai and Perron (1998). This allows us to extend Bai and Perron’s (1998) sequential procedure for selecting the number of break points to the 2SLS setting. Our methods also allow for structural instability in the reduced form that has been identified a priori using data-based methods. As an empirical illustration, our methods are used to assess the stability of the New Keynesian Phillips curve.

• Item Type: MPRA Paper
• Language: English
• Keywords: unknown break points; structural change; instrumental variables; endogenous regressors; structural stability tests; new Keynesian Phillips curve
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C13 - Estimation: General; C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C12 - Hypothesis Testing: General; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; C - Mathematical and Quantitative Methods > C0 - General > C01 - Econometrics

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