One-Sided Test for an Unknown Breakpoint: Theory, Computation, and Application to Monetary Theory

25 Pages Posted: 30 Nov 2005

See all articles by Arturo Estrella

Arturo Estrella

Rensselaer Polytechnic Institute

Anthony P. Rodrigues

Federal Reserve Bank of New York

Date Written: November 2005

Abstract

The econometrics literature contains a variety of two-sided tests for unknown breakpoints in time-series models with one or more parameters. This paper derives an analogous one-sided test that takes into account the direction of the change for a single parameter. In particular, we propose a sup t statistic, which is distributed as a normalized Brownian bridge. The method is illustrated by testing whether the reaction of monetary policy to inflation has increased since 1959.

Keywords: break test, monetary policy reaction function

JEL Classification: C12, C22, E52

Suggested Citation

Estrella, Arturo and Rodrigues, Anthony P., One-Sided Test for an Unknown Breakpoint: Theory, Computation, and Application to Monetary Theory (November 2005). FRB of NY Staff Report No. 232, Available at SSRN: https://ssrn.com/abstract=860566 or http://dx.doi.org/10.2139/ssrn.860566

Arturo Estrella (Contact Author)

Rensselaer Polytechnic Institute ( email )

110 8th Street
Troy, NY 12180
United States

Anthony P. Rodrigues

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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