It is known that several widely used structural change tests have non-monotonic power because the long-run variance is poorly estimated under the alternative hypothesis. In this paper, we propose a modified long-run variance estimator to alleviate this problem. We theoretically show that the tests with our long-run variance estimator are consistent against large multiple structural changes. Simulation results show that the proposed test performs well in finite samples.
All Science Journal Classification (ASJC) codes
- Statistics and Probability
- Modelling and Simulation
- Statistics, Probability and Uncertainty
- Applied Mathematics