Presence Of Structural Change Research Articles

Spurious levels relationships

The bounds testing approach of Pesaran et al. (2001) allows examination of levels relationships between series when their orders of integration are either unknown or uncertain. In this paper it is shown that when the order of integration of a series is uncertain due to the presence of structural change, the bounds testing procedure is subject to severe size distortion and consequently detects spurious relationships between independent variables.

Co-integration testing using local-to-unity detrending: the impact of structural change under the null

In recent research, Perron and Rodriguez [Perron, P. and Rodriguez, G., 2006, Residual based tests for cointegration with GLS detrended data. Econometric Theory, in press.] have shown the use of local-to-unity detrending via generalised least squares to increase the power of the Engle–Granger [Engle, R. and Granger, C., 1987, Cointegration and error correction: representation, estimation and testing. Econometrica, 55, 251–276.] test for co-integration. In this paper, the properties of the resulting test are examined in the presence of structural change under the null hypothesis. The results of Monte Carlo experimentation show the test to possess very different properties to those noted in the literature previously by Leybourne and Newbold [Leybourne, S. and Newbold, P., 2003, Spurious rejections by co-integration tests induced by structural breaks. Applied Economics, 35, 1117–1121.] for the Engle–Granger and Johansen tests. The findings obtained show the extent of oversizing exhibited by the presence of level breaks to be substantially smaller than that of alternative co-integration tests. Furthermore, the results obtained for trend breaks are in stark contrast to those for alternative tests, with the oversizing noted for the Engle–Granger and Johansen tests replaced by undersizing for the test. In summary, the present analysis shows the test to be far less prone to the problem of spurious co-integration than previously examined tests.

Testing the long-run relationship between health expenditures and GDP in the presence of structural change: the case of Spain

This article examines the long-run relationship between per capita US$ PPP health expenditures (HE) and per capita US$ PPP national income (GDP), using Spanish data over the period 1960 to 2001. We extend previous analyses by addressing the question of whether this relationship is stable over time, allowing for structural changes at an unknown date. Our empirical results are consistent with the existence of a long-run relationship between both variables, with two structural changes in 1971 and 1991. On the other hand, health would have been characterized as a luxury commodity, even though increasingly less over time.

Further results on the detection of changes in persistence in linear time series

Recent research concerning the properties of ‘change in persistence’ tests in the presence of structural change is extended. It is found that the recently proposed tests of Leybourne, Kim and Taylor (2004) are subject to severe size distortion in the presence of both breaks in level and drift under the unit root null hypothesis. The present analysis suggests that any results obtained from these tests should be treated with caution to avoid drawing a spurious inference of a change in persistence.

Heterogeneity in the persistence of relative prices: What do the Japanese cities tell us?

This paper employs diverse measures of persistence to analyze the convergence speed of intercity relative prices in Japan using consumer price subindices during 1970–2002. Regardless of the persistence measures, the median estimated half-lives are found to be less than two years in the vast majority of CPI items considered, which is compatible with economic models based on price rigidities. However, there exists a large heterogeneity in the persistence not just between tradable and nontradable items as is widely known, but within the categories of tradables or nontradables. The heterogeneity is substantive across cities in each CPI item as well. Our findings are robust to a subsample analysis though it points toward a presence of structural change around 1985. We conjecture that the extent of heterogeneity across CPI items is linked to the degree of tradability and market structure, while physical distance and relative city size may play some roles in the heterogeneity across cities. J. Japanese Int. Economies 21 (2) (2007) 260–286.

A Cointegration Analysis of Car Advertising and Sales Data in the Presence of Structural Change

This paper examines whether there is a long‐run stable equilibrium relationship between advertising and sales across the market segments of the UK car industry over the period 1971–2001. In order to achieve this goal, we allow for structural breaks in the series using cointegration techniques. The results show the existence of long‐run equilibrium relationships in all six market segments, although in four of them the relationship is not stable. In general, one structural change is detected in the late 1970s and another in the early 1990s, coinciding with two economic recessions. When we do not account for structural changes, the estimated long‐run elasticities of advertising on sales are seen to be substantially downwardly biased. Finally, a noticeable increase is observed in long‐run elasticities in most car market segments during the nineties with respect to previous decades.

Determinants of compliance in the emissions compensation program in Santiago, Chile

The Emissions Compensation (EC) Program in Santiago, Chile, has been affected from the beginning by the incidence of individual violations of maximum-emission capacity permits. Based on information at the individual source level, in this paper we develop and estimate a model explaining the individual compliance decision with emission capacity permits. Our results indicate that the compliance behavior of sources during the period 1993–1999 do in fact depend on their individual characteristics. Among other factors, type of equipment used, industrial sector to which the source belongs, fuel type used, the initial allocation of emission capacity permits to the source, and population density as well as average income in the area where the source is located, turn out to be relevant. Furthermore, the evidence does not allow us to reject the presence of structural change in the individual decision to comply with permit holdings because of the introduction of natural gas in the Metropolitan Region of Santiago at the end of 1997.

Rank-based unit root testing in the presence of structural change under the null: simulation results and an application to US inflation

The size distortion of the Dickey-Fuller (Journal of the American Statistical Association, 74, pp. 427–31, 1979) unit root test is examined in the presence of structural changes in both the level and variance of integrated time series. In contrast to previous studies, the empirically relevant situation in which such breaks occur simultaneously is examined. It is shown that the severe distortion observed for the Dickey-Fuller test can be dramatically reduced via application of a simple rank-based method. The simulation results presented are supported by an empirical examination of the integrated nature of US inflation where differing inferences are drawn using the Dickey-Fuller test and the rank-based Dickey-Fuller test.

Environmental foresight and structural change

Policy-makers and the public, it has famously been said [Brooks, H. (1986) Sustainable Development of the Biosphere, Cambridge University Press, p. 325], are more interested in the possibility of non-linear dislocations and surprises in the behavior of the environment than in smooth extrapolations of current trends. How indeed should we design our models to generate environmental foresight, to detect, in particular, threats to our environment lying ‘just beyond the horizon’? In facing this prospect of potentially profound dislocations in behavior, the problem is that the number of state variables in the model, whether they interact, how they interact, and the form of their interactions, may be evolving over time. What may have appeared to have been an insignificant mode of behavior in the past—buried within the uncertainty of the model and the historical data—may come to dominate behavior in the future. Technically, we may call this a change of structure. The concern of the paper is to address the challenge of constructing and employing models to generate environmental foresight in the presence of structural change. A number of case histories, ranging across lake eutrophication, urban ozone levels, the restoration of ecosystems, the circulation of waters in the North Atlantic, and the invasion of exotic species, are used to construct a much more immediate sense of the nature of structural change and, therefore, the character of the challenge of generating environmental foresight. Some mathematical and logical formalities are then introduced, both to define the issues more sharply and to open up the means with which to address them. This provides an opportunity to take stock of three rather different programs of model-building used, over the decades, to generate environmental foresight. We close by illustrating a set of possible responses to the essential challenge through a number of contemporary case studies: in assessing, inter alia, the reachability of the lay community's hopes and fears for the future of their cherished piece of the environment; in apprehending and diagnosing the possibility of imminent structural change; and in examining the record of the past for emergence of the seeds of any such structural change.

Robust Monetary Policy Rules with Unknown Natural Rates

We examine the performance and robustness properties of alternative monetary policy rules in the presence of structural change that renders the natural rates of interest and unemployment uncertain. Using a forward-looking quarterly model of the U.S. economy, estimated over the 1969-2002 period, we show that the cost of underestimating the extent of misperceptions regarding the natural rates significantly exceeds the costs of overestimating such errors. Naive adoption of policy rules optimized under the false presumption that misperceptions regarding the natural rates are likely to be small proves particularly costly. Our results suggest that a simple and effective approach for dealing with ignorance about the degree of uncertainty in estimates of the natural rates is to adopt difference rules for monetary policy, in which the short-term nominal interest rate is raised or lowered from its existing level in response to inflation and changes in economic activity. These rules do not require knowledge of the natural rates of interest or unemployment for setting policy and are consequently immune to the likely misperceptions in these concepts. To illustrate the differences in outcomes that could be attributed to the alternative policies we also examine the role of misperceptions for the stagflationary experience of the 1970s and the disinflationary boom of the 1990s.

Slow Growth, Trade Liberalisation and the Mexican Disease: A medium-term macroeconomic model with an application to Mexico

The purpose of this paper is to analyse Mexico's medium-term macroeconomic outlook, from the vantage point of the country's recent development. The analysis is carried out within a formal model for the determination of the rates of employment and inflation under conditions of external and internal balance. In equilibrium, the real wage and the rates of employment and inflation depend inter alia on the level of labour productivity, the ratio of foreign debt to domestic output, and the foreign trade regime. Econometric tests based on Mexican data support the model's basic postulates and, in addition, reveal the presence of structural change, linked to trade reform, in the trade balance and the manufactures' productivity growth equations. The macroeconomic implications of such parameter changes are discussed with the help of the analytical model developed.

Robust Monetary Policy Rules with Unknown Natural Rates

We examine the performance and robustness properties of alternative monetary policy rules in the presence of structural change that renders the natural rates of interest and unemployment uncertain. Using a forward-looking quarterly model of the U.S. economy, estimated over the 1969-2002 period, we show that the cost of underestimating the extent of misperceptions regarding the natural rates significantly exceeds the costs of overestimating such errors. Naive adoption of policy rules optimized under the false presumption that misperceptions regarding the natural rates are likely to be small proves particularly costly. Our results suggest that a simple and effective approach for dealing with ignorance about the degree of uncertainty in estimates of the natural rates is to adopt difference rules for monetary policy, in which the short-term nominal interest rate is raised or lowered from its existing level I response to inflation and changes in economic activity. These rules do not require knowledge of the natural rates of interest or unemployment for setting policy and are consequently immune to the likely misperceptions in these concepts. To illustrate the differences in outcomes that could be attributed to the alternative policies we also examine the role of misperceptions for the stagflationary experience of the 1970s and the disinflationary boom of the 1990s.

Robust Monetary Policy Rules with Unknown Natural Rates

We examine the performance and robustness properties of alternative monetary policy rules in the presence of structural change that renders the natural rates of interest and unemployment uncertain. Using a forward-looking quarterly model of the U.S. economy, estimated over the 1969-2002 period, we show that the cost of underestimating the extent of misperceptions regarding the natural rates significantly exceeds the costs of overestimating such errors. Naive adoption of policy rules optimized under the false presumption that misperceptions regarding the natural rates are likely to be small proves particularly costly. Our results suggest that a simple and effective approach for dealing with ignorance about the degree of uncertainty in estimates of the natural rates is to adopt difference rules for monetary policy, in which the short-term nominal interest rate is raised or lowered from its existing level in response to inflation and changes in economic activity. These rules do not require knowledge of the natural rates of interest or unemployment for setting policy and are consequently immune to the likely misperceptions in these concepts. To illustrate the differences in outcomes that could be attributed to the alternative policies we also examine the role of misperceptions for the stagflationary experience of the 1970s and the disinflationary boom of the 1990s.

Robust Monetary Policy Rules with Unknown Natural Rates

natural rate is an abstraction; like faith, it is seen by its works. can only say if bank policy succeeds in stabilizing prices, bank rate must have been brought in line with natural rate, but if it does not, it must not have been. (1) THE CONVENTIONAL PARADIGM for conduct of monetary policy calls for monetary authority to attain its objectives of a low and stable rate of inflation and full employment by adjusting its short-term interest rate instrument--in United States, federal funds rate--in response to economic developments. In principle, when aggregate demand and employment fall short of economy's natural levels of output and employment, or when other deflationary concerns appear on horizon, central bank should ease monetary policy by bringing real interest rates below economy's natural rate of interest for some Conversely, central bank should respond to inflationary concerns by adjusting interest rates upward so as to bring real interest rates above natural rate. In this setting, natural rate of unemployment is unemployment rate consistent with stable inflation; natural rate of interest is real interest rate consistent with unemployment being at its natural rate, and therefore with stable inflation. (2) In carrying out this strategy in practice, policymaker would ideally have accurate, quantitative, contemporaneous readings of natural rate of interest and natural rate of unemployment. Under those circumstances, economic stabilization policy would be relatively straightforward. However, an important difficulty complicates policymaking in practice and may limit scope for stabilization policy is policymakers do not know values of these natural rates in real time, is, when they make policy decisions. Indeed, even in hindsight there is considerable uncertainty regarding natural rates of unemployment and interest, and ambiguity about how best to model and estimate natural rates. Milton Friedman, arguing against natural rate-based policies in his presidential address to American Economic Association, posited One problem is [the policymaker] cannot know what `natural' rate is. Unfortunately, we have as yet devised no method to estimate accurately and readily natural rate of either interest or unemployment. And `natural' rate will itself change from time to time. (3) Friedman's comments echo those made decades earlier by John H. Williams and by Gustav Cassel, who wrote of natural rate of interest: The bank cannot know at a certain moment what is equilibrium rate of interest of capital market. (4) Even earlier, Knut Wicksell stressed the natural rate is not fixed or unalterable in magnitude. (5) Recent research using modern statistical techniques to estimate natural rates of unemployment, output, and interest indicates this problem is no less relevant today than it was 35, 75, or 105 years ago. These measurement problems appear particularly acute in presence of structural change, when natural rates may vary unpredictably, subjecting estimates to increased uncertainty. Douglas Staiger, James Stock, and Mark Watson document estimates of a time-varying natural rate of unemployment are very imprecise. (6) Orphanides and Simon van Norden show estimates of related concept of natural rate of output (that is, potential output) are likewise plagued by imprecision. (7) Similarly, Thomas Laubach and John C. Williams document great degree of uncertainty regarding estimates of natural rate of interest. (8) These difficulties have led some observers to discount usefulness of natural rate estimates for policymaking. William Brainard and George Perry conclude that conventional estimates from a NAIRU [nonaccelerating-inflation rate of unemployment] model do not identify full employment range with a degree of accuracy is useful to policymaking. …

Business cycle measurement in the presence of structural change: international evidence

By generalizing Hamilton’s model of the US business cycle to a three-regime Markov-switching vector autoregressive model, this paper analyzes regime shifts in the stochastic process of economic growth in the US, Japan and Europe over the last four decades. Empirical evidence is established for the presence of a structural break in the expansionary GDP growth for the US and Japan based on an output-employment MS vector equilibrium correction model, and a structural break in the context of a common European business cycle. For the United States the long expansions of recent years signify basic changes in the business cycles pattern. In the case of Japan we identify long episodes of rapid economic expansions (existing until the mid 1970s) and long economic recessions (as in the 1990s). In Europe we find after an episode of catching-up in the 1970s, convergence in the business cycle pattern which suggests the notion of a European business cycle. The multi-regime Markov-switching VARs proposed are profoundly checked for their economic content and statistical congruency, and are found to provide a sound statistical framework for a comprehensive analysis of the business cycle.

Do Static Gains from Trade Lead to Medium-Run Growth?

Previous articleNext article No AccessCommentDo Static Gains from Trade Lead to Medium-Run Growth?Joy MazumdarJoy Mazumdar Search for more articles by this author PDFPDF PLUS Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinkedInRedditEmail SectionsMoreDetailsFiguresReferencesCited by Journal of Political Economy Volume 104, Number 6Dec., 1996 Article DOIhttps://doi.org/10.1086/262062 Views: 15Total views on this site Citations: 24Citations are reported from Crossref Copyright 1996 The University of ChicagoPDF download Crossref reports the following articles citing this article:Haiyan Luo, Xiaoe Qu Export Trade, Absorptive Capacity, and High-Quality Economic Development in China, Systems 11, no.22 (Jan 2023): 54.https://doi.org/10.3390/systems11020054Mateo Hoyos Did the trade liberalization of the 1990s really boost economic growth? a critical replication of Estevadeordal and Taylor (2013), Empirical Economics 63, no.11 (Sep 2021): 525–548.https://doi.org/10.1007/s00181-021-02139-8Li Xin, Yimin Wang Towards a green world: the impact of the Belt and Road Initiative on the carbon intensity reduction of countries along the route, Environmental Science and Pollution Research 29, no.1919 (Jan 2022): 28510–28526.https://doi.org/10.1007/s11356-021-17575-3Yu Pan, Li Ma, Yanzhen Wang How and what kind of cities benefit from the development of digital inclusive finance? 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Deardorff Growth or decline of comparative advantage, Journal of Macroeconomics 38 (Dec 2013): 12–18.https://doi.org/10.1016/j.jmacro.2013.08.020Antoni Estevadeordal, Alan M. Taylor Is the Washington Consensus Dead? Growth, Openness, and the Great Liberalization, 1970s–2000s, Review of Economics and Statistics 95, no.55 (Dec 2013): 1669–1690.https://doi.org/10.1162/REST_a_00358Kozo Kiyota Trade liberalization, economic growth, and income distribution in a multiple-cone neoclassical growth model, Oxford Economic Papers 64, no.44 (Feb 2012): 655–674.https://doi.org/10.1093/oep/gps002Hiroaki Sasaki TRADE, NON-SCALE GROWTH AND UNEVEN DEVELOPMENT, Metroeconomica 62, no.44 (Aug 2011): 691–711.https://doi.org/10.1111/j.1467-999X.2011.04135.xMina Baliamoune-Lutz Growth by Destination (Where You Export Matters): Trade with China and Growth in African Countries*, African Development Review 23, no.22 (Jun 2011): 202–218.https://doi.org/10.1111/j.1467-8268.2011.00281.xJuan Felipe Mejía Export Diversification, International Trade, and Economic Growth: A Survey of the Literature, (May 2011): 9–47.https://doi.org/10.1007/978-3-7908-2742-2_2Mina Baliamoune-Lutz Growth by Destination (Where You Export Matters): Trade with China and Growth in African Countries, SSRN Electronic Journal (Jan 2010).https://doi.org/10.2139/ssrn.1680310Diery Seck An Analytical Framework for the New Partnership for Africa's Development (NEPAD), Journal of African Development 9, no.11 (Apr 2007): 105–134.https://doi.org/10.5325/jafrideve.9.1.0105Ricardo A. 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Exact tests for structural change in first-order dynamic models

Several finite-sample tests of parameter constancy against the presence of structural change are proposed for a linear regression model with one lagged dependent variable and independent normal disturbances. The procedures derived include analysis-of-covariance, CUSUM, CUSUM-of-squares, and predictive tests. The approach used to obtain the tests involves the application of three techniques: derivation of an exact confidence set for the autoregressive parameter (based on using an appropriately extended regression), a union-intersection technique, and (when required) randomization. The tests proposed are illustrated with some artificial data and applied to a dynamic trend model of gross private domestic investment in the U.S.

Forecasting Cattle Prices in the Presence of Structural Change

AbstractRecent empirical research and developments in the cattle industry suggest several reasons to suspect structural change in economic relationships determining cattle prices. Standard forecasting models may ignore structural change and may produce biased and misleading forecasts. Vector autoregressive (VAR) models that allow parameters to vary with time are used to forecast quarterly cattle prices. The VAR procedures are flexible in that they allow the identification of structural change that begins at an a priori unknown point and occurs gradually. The results indicate that the lowest RMSE for out-of-sample forecasts of cattle prices is obtained using a gradually switching VAR model. However, differences between the gradually switching VAR model and a univariate ARIMA model are not strongly significant. Impulse response functions indicate that adjustments of cattle prices to new information have become faster in recent years.

Estimation of GARCH process in the presence of structural change

This paper blends the switching regression model of Goldfeld and Quandt (1973) with the GARCH model of Bollerslev (1987) in order to estimate and test for the significance of GARCH parameters in the presence of structural breaks. The GARCH parameter values, the switch date at which one regime supersedes another and the gradualness of each regime switch are all determined endogenously.

Structural change and the combination of forecasts

AbstractForecasters are generally concerned about the properties of model‐based predictions in the presence of structural change. In this paper, it is argued that forecast errors can under those conditions be greatly reduced through systematic combination of forecasts. We propose various extensions of the standard regression‐based theory of forecast combination. Rolling weighted least squares and time‐varying parameter techniques are shown to be useful generalizations of the basic framework. Numerical examples, based on various types of structural change in the constituent forecasts, indicate that the potential reduction in forecast error variance through these methods is very significant. The adaptive nature of these updating procedures greatly enhances the effect of risk‐spreading embodied in standard combination techniques.