Estimation of a Structural Break Point in Linear Regression Models

DOI10.1080/07350015.2022.2154777MaRDI QIDQ6150351zbMATH OpenOpenAlexFDO

Authors

Publication date 6 March 2024

Published in Journal of Business and Economic Statistics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1811.03720, https://figshare.com/articles/journal_contribution/Estimation_of_a_Structural_Break_Point_in_Linear_Regression_Models/21663153

zbMATH Keywords

change pointparameter instabilitystructural change

Mathematics Subject Classification ID

Applications of statistics to economics (62P20)

Abstract: This study proposes a point estimator of the break location for a one-time structural break in linear regression models. If the break magnitude is small, the least-squares estimator of the break date has two modes at the ends of the finite sample period, regardless of the true break location. To solve this problem, I suggest an alternative estimator based on a modification of the least-squares objective function. The modified objective function incorporates estimation uncertainty that varies across potential break dates. The new break point estimator is consistent and has a unimodal finite sample distribution under small break magnitudes. A limit distribution is provided under an in-fill asymptotic framework. Monte Carlo simulation results suggest that the new estimator outperforms the least-squares estimator. I apply the method to estimate the break date in U.S. real GDP growth and U.S. and UK stock return prediction models.

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