Confidence sets for the break date based on optimal tests | Zendy

Kurozumi Eiji | Zendy; Yamamoto Yohei | Zendy

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Confidence sets for the break date based on optimal tests

Author(s) -

Kurozumi Eiji,

Yamamoto Yohei

Publication year - 2015

Publication title -

the econometrics journal

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 3.861

H-Index - 36

eISSN - 1368-423X

pISSN - 1368-4221

DOI - 10.1111/ectj.12055

Subject(s) - confidence interval , test statistic , monte carlo method , set (abstract data type) , statistics , statistic , confidence region , mathematics , test (biology) , function (biology) , coverage probability , algorithm , statistical hypothesis testing , computer science , paleontology , evolutionary biology , biology , programming language

Summary In this paper, we propose constructing a confidence set for the date of a one‐time structural change using a point optimal test. Following Elliott and Müller (2007, Journal of Econometrics 141 , 1196–1218), we first construct a test for the break date that maximizes the weighted average of the power function. The confidence set is then obtained by inverting the test statistic. We carefully choose the weights and show by Monte Carlo simulations that the confidence set based on our method has a relatively accurate coverage rate, while the length of our confidence set is significantly shorter than the lengths proposed in the literature.

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