Econometrica: Sep 1996, Volume 64, Issue 5

Optimal Tests for Parameter Instability in the Generalized Method of Moments Framework

https://doi.org/0012-9682(199609)64:5<1085:OTFPII>2.0.CO;2-X
p. 1085-1107

Fallaw Sowell

This paper presents optimal tests for parameter instability in the GMM framework. The new tests include tests that are optimal for both one-sided and two-sided alternatives. One of the optimal tests for two-sided alternatives is the GMM generalization of the test presented in Andrews and Ploberger (1994) for the likelihood framework. The new tests include a class of optimal tests that direct the test's power to specific locations in the sample. One of these optimal tests has the attractive feature of a normal distribution under the null hypothesis.

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