Take Action

Home | Faculty & Research Overview | Research

Research Details

Testing for Parameter Instability and Structural Change in Persistent Predictive Regressions, Journal of Econometrics


This paper proposes a consistent inference procedure for predictive regressions in economic systems governed by fractionally integrated vector autoregressive dynamics that may be subject to low-frequency contamination such as structural, or Markov-switching, breaks, outliers and deterministic trends. Specifically, we modify the local spectrum (LCM) inference procedure (Andersen & Varneskov (2019)), making it robust towards such features by establishing new results for the first-stage filtering as well as the second-stage trimming. The modified LCM estimator and tests are asymptotically normal and chi^2, respectively, despite the variables having different integration orders and being low-frequency contaminated. As bi-products of our analysis, we provide a modified exact local Whittle estimator of the integration order and a modified test for cointegration rank, which are both robust to contamination. Furthermore, we provide consistent estimators of the coherence between (unknown) low-frequency contaminants. The validity of the estimators and tests are examined in a simulation study. Finally, we use the new framework to dissect the dynamic properties and dependencies in popular first-order VAR systems in macro finance.




Torben Andersen, Rasmus Tangsgaard Varneskov

Date Published



Andersen, Torben, and Rasmus Tangsgaard Varneskov. 2022. Testing for Parameter Instability and Structural Change in Persistent Predictive Regressions. Journal of Econometrics.: 361-386.


Explore leading research and ideas

Find articles, podcast episodes, and videos that spark ideas in lifelong learners, and inspire those looking to advance in their careers.
learn more


Review Courses & Schedules

Access information about specific courses and their schedules by viewing the interactive course scheduler tool.


Discover the path to your goals

Whether you choose our Full-Time, Part-Time or Executive MBA program, you’ll enjoy the same unparalleled education, exceptional faculty and distinctive culture.
learn more