A general test for time dependence in parameters

• Published in: Journal of applied econometrics (Chichester, England) Vol. 19; no. 7; pp. 899 - 906
• Main Authors: Becker, Ralf, Enders, Walter, Hurn, Stan
• Format: Journal Article
• Language: English
• Published: Chichester, UK John Wiley & Sons, Ltd 01.11.2004; John Wiley & Sons; Wiley Periodicals Inc
• Subjects: Applied econometrics; Approximation; Bootstrap resampling; Coefficients; Critical values; Econometrics; Economic theory; Estimation; Frequency ranges; Hypotheses; Inflation; Inflation rates; Mathematical functions; Methodology; Null hypothesis; Power; Regression coefficients; Statistical methods; Studies; Time; Time dependence; Time series; United States > US
• ISSN: 0883-7252; 1099-1255
• DOI: 10.1002/jae.751

A new test for time-dependent parameters is proposed. The Trig-test is based on a trigonometric expansion to approximate the unknown functional form of the variation in the parameters concerned. It is shown to have the correct empirical size and excellent power to detect structural breaks and stochastic parameter variation. The appropriate use of the Trig-test is demonstrated by testing for structural breaks in the US inflation rate. The test detects a statistically significant increase in the US inflation rate beginning in the early 1970s and lasting through to the early 1980s.