Template-Type: ReDIF-Paper 1.0

Author-Name: Ai Deng
Author-X-Name-First: Ai
Author-X-Name-Last: Deng
Author-Email: dengai@bu.edu
Author-Workplace-Name: Department of Economics, Boston University

Author-Name: Pierre Perron
Author-X-Name-First: Pierre
Author-X-Name-Last: Perron
Author-Email: perron@bu.edu
Author-Workplace-Name: Department of Economics, Boston University


Title: The Limit Distribution of the CUSUM of Square Test Under Genreal MIxing Conditions*

Abstract: We consider the CUSUM of squares test in a linear regression model with general
mixing assumptions on the regressors and the errors. We derive its limit distribution
and show how it depends on the nature of the error process. We suggest a corrected
version that has a limit distribution free of nuisance parameters. We also discuss how
it provides an improvement over the standard approach to testing for a change in the
variance in a univariate times series. Simulation evidence is presented to support this.
We illustrate the usefulness of our method by analyzing changes in the variance of stock
returns and a variety of macroeconomic time series, as well as by testing for change in
the variance of the residuals in a typical four-variable VAR model. Our results show
the widespread prevalence of changes in the variance of such series and the fact that
the variability of shocks affecting the U.S. economy has decreased.


Length: 25 pages
Creation-Date: 2005-11
Revision-Date: 
Publication-Status:
File-URL: http://www.bu.edu/econ/workingpapers/papers/Pierre%20Perron/wp2005/cus-lim.pdf
File-Format: Application/pdf
File-Function: 
Number: WP2005-046
Classification-JEL: D80, D91, G11, E21
Keywords: Change-point, Variance shift, Recursive residuals, Dynamic models,
Conditional heteroskedasticity.
Handle: RePEc:bos:wpaper:WP2005-046