Generic Consistency of the Break-Point Estimators Under Specification Errors in a Multiple-Break Model

21 Pages Posted: 14 Jul 2008

See all articles by Jushan Bai

Jushan Bai

New York University (NYU) - Department of Economics

Haiqiang Chen

Xiamen University - Wang Yanan Institute for studies in Economics

Terence Tai-Leung Chong

The Chinese University of Hong Kong (CUHK) - Lau Chor Tak Institute of Global Economics and Finance

Seraph Xin Wang

The Chinese University of Hong Kong

Date Written: 2007-12

Abstract

This paper considers the estimation of multiple-structural-break models under specification errors. A common example in economics is that the true model is measured in level, but a linear-log model is estimated. We show that, under specification errors, if there are more than one break points and if a single-break model is estimated, the estimated break point is consistent for one of the true break points. This consistency result applies to models with multiple regressors where some or all of the regressors are misspecified. Another important contribution of this paper is that we have constructed a Sup-Wald test whose limiting distribution is not affected by model misspecification. Using this robust test, we show that the break points can be estimated sequentially one at a time. Simulation evidence and an empirical application are provided.

Suggested Citation

Bai, Jushan and Chen, Haiqiang and Chong, Terence Tai-Leung and Wang, Seraph Xin, Generic Consistency of the Break-Point Estimators Under Specification Errors in a Multiple-Break Model (2007-12). Econometrics Journal, Vol. 11, Issue 2, pp. 287-307, July 2008, Available at SSRN: https://ssrn.com/abstract=1158679 or http://dx.doi.org/10.1111/j.1368-423X.2008.00237.x

Jushan Bai (Contact Author)

New York University (NYU) - Department of Economics ( email )

269 Mercer Street, 7th Floor
New York, NY 10003
United States

Haiqiang Chen

Xiamen University - Wang Yanan Institute for studies in Economics ( email )

Economics Building A307
Xiamen University
Xiamen, Fujian 361005
China

Terence Tai-Leung Chong

The Chinese University of Hong Kong (CUHK) - Lau Chor Tak Institute of Global Economics and Finance ( email )

13/F, Cheng Yu Tung Building
12 Chak Cheung Street
Hong Kong, Shatin, N.T.
Hong Kong

Seraph Xin Wang

The Chinese University of Hong Kong ( email )

Hong Kong
Hong Kong

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