Bootstrap test for a structural break under possible heteroscedasticity

Abstract

ABSTRACTIn this article, we consider the Wald test statistic for testing equality between the sets of regression coefficients in two linear regression models when the disturbance variances may possibly be unequal. This test can be also used as a test for a structural break. However, it is well known that the test based on the Wald test statistic suffers from severe size distortion in small sample when the disturbance variances of the two regression models are unequal. Our simulation results show that substantial improvements are made when the bootstrap methods are applied.