SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

Abstract: This paper considers testing parameter constancy in linear models when the alternative is that a subset of the parameters follow a stationary vector autoregressive process of known finite order. This kind of a linear model is only identified under the alternative, which usually precludes finding a test statistic with an analytic nuyll distribution. In the present situation, however, it is still possible to derive a test statistic with an asymptotic chi-squared distribution under the null hypothesis and this is done in the paper. The small-sample properties of the test statistic are investigated by simulation and found satisfactory. The test retains its power when the alternative to parameter constancy is a random walk parameter process.

Keywords: Lack of identification; Lagrange multiplier test; parameter stability; return to normalcy; time-varying parameters; vector autoregressive process

JEL-codes: C22

33 pages, May 1995

Download statistics

• Stockholm School of Economics
• Home page for this series

Questions (including download problems) about the papers in this series should be directed to Helena Lundin ()
Report other problems with accessing this service to Sune Karlsson ().

RePEc:hhs:hastef:0054This page generated on 2024-09-13 22:19:40.