Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/55172
Authors: 
Groen, Jan J. J.
Kapetanios, George
Price, Simon
Year of Publication: 
2010
Series/Report no.: 
Working Paper // School of Economics and Finance, Queen Mary, University of London 658
Abstract: 
Detection of structural change is a critical empirical activity, but continuous 'monitoring' of series, for structural 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.
Subjects: 
monitoring
structural change
panel
CUSUM
fluctuation test
JEL: 
C10
C59
Document Type: 
Working Paper

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