Publication Type

Journal Article

Version

submittedVersion

Publication Date

7-2018

Abstract

Based on the Girsanov theorem, this paper obtains the exact distribution of the maximum likelihood estimator of structural break point in a continuous time model. The exact distribution is asymmetric and tri-modal, indicating that the estimator is biased. These two properties are also found in the finite sample distribution of the least squares (LS) estimator of structural break point in the discrete time model, suggesting the classical long-span asymptotic theory is inadequate. The paper then builds a continuous time approximation to the discrete time model and develops an in-fill asymptotic theory for the LS estimator. The in-fill asymptotic distribution is asymmetric and tri-modal and delivers good approximations to the finite sample distribution. To reduce the bias in the estimation of both the continuous time and the discrete time models, a simulation-based method based on the indirect estimation (IE) approach is proposed. Monte Carlo studies show that IE achieves substantial bias reductions.

Keywords

Structural break, Bias reduction, Indirect estimation, Exact distribution, In-fill asymptotics

Discipline

Econometrics

Research Areas

Econometrics

Publication

Journal of Econometrics

Volume

205

Issue

1

First Page

156

Last Page

176

ISSN

0304-4076

Identifier

10.1016/j.jeconom.2018.03.009

Publisher

Elsevier: 24 months

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1016/j.jeconom.2018.03.009

Included in

Econometrics Commons

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