TESTS FOR PARAMETER INSTABILITY IN DYNAMIC FACTOR MODELS

By Xu Han, A. Inoue. Econometric Theory, 2013

107 citations recorded by the source corpus.

In this paper, we develop tests for structural breaks of factor loadings in dynamic factor models. We focus on the joint null hypothesis that all factor loadings are constant over time. Because the number of factor loading parameters goes to infinity as the sample size grows, conventional tests cannot be used. Based on the fact that the presence of a structural change in factor loadings yields a structural change in second moments of factors obtained from the full sample principal component estimation, we reduce the infinite-dimensional problem into a finite-dimensional one and our statistic compares the pre- and postbreak subsample second moments of estimated factors. Our test is consistent under the alternative hypothesis in which a fraction of or all factor loadings have structural changes. The Monte Carlo results show that our test has good finite-sample size and power.

View Paper: https://www.semanticscholar.org/paper/96d2c219ed85dd1450f3050b7fec4da56c06c522

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Citations in the corpus

Estimation of large dimensional factor models with an unknown number of breaks (2018, background): “4(ii); see also Han and Inoue (2014) and Su and Wang (2015, Lemma B.”
State-Varying Factor Models of Large Dimensions (2018, methodology): “7Our test differs from the existing tests, such as those of Breitung and Eickmeier (2011), Chen, Dolado, and Gonzalo (2014), Han and Inoue (2015), and Yamamoto and Tanaka (2015), which check the stability of the moments of factor loadings or common factors, but do not take invertible transfor- Our…”
Testing for Structural Stability of Factor Augmented Forecasting Models (2014, background): “1 in West and McCracken (1998), and along the same lines as in the proof of Proposition 1(a) in Corradi and Swanson (2006b), for P ≤ R,”
Identification and estimation of a large factor model with structural instability (2017, methodology): “Equivalent representation of model (2) was first formulated by Han and Inoue (2015).”
Testing for Factor Loading Structural Change under Common Breaks (2015, background): “3Recently, two other factor loading structural change tests have been proposed by Chen et al. (2012) and Han and Inoue (2013).”
Simultaneous multiple change-point and factor analysis for high-dimensional time series (2016, unknown): “While the majority of change-point methods for factor models rely on the consistent estimation of the number of factors (Breitung and Eickmeier, 2011; Han and Inoue, 2014; Chen et al., 2014; Corradi and Swanson, 2014), our empirical study on simulated data, available in the supplementary document, i”