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Optimal Tests for Parameter Instability in the Generalized Method of Moments Framework

Fallaw Sowell
Econometrica
Vol. 64, No. 5 (Sep., 1996), pp. 1085-1107
Published by: The Econometric Society
DOI: 10.2307/2171957
Stable URL: http://www.jstor.org/stable/2171957
Page Count: 23
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Optimal Tests for Parameter Instability in the Generalized Method of Moments Framework
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Abstract

This paper presents optimal tests for parameter instability in the GMM framework. The new tests include tests that are optimal for both one-sided and two-sided alternatives. One of the optimal tests for two-sided alternatives is the GMM generalization of the test presented in Andrews and Ploberger (1994) for the likelihood framework. The new tests include a class of optimal tests that direct the test's power to specific locations in the sample. One of these optimal tests has the attractive feature of a normal distribution under the null hypothesis.

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