Arbeitspapier
Testing for Parameter Instability in Competing Modeling Frameworks
We develop a new parameter stability test against the alternative of observation driven generalized autoregressive score dynamics. The new test generalizes the ARCH-LM test of Engle (1982) to settings beyond time-varying volatility and exploits any autocorrelation in the likelihood scores under the alternative. We compare the test's performance with that of alternative tests developed for competing time-varying parameter frameworks, such as structural breaks and observation driven parameter dynamics. The new test has higher and more stable power against alternatives with frequent regime switches or with non-local parameter driven time-variation. For parameter driven time variation close to the null or for infrequent structural changes, the test of Muller and Petalas (2010) performs best overall. We apply all tests empirically to a panel of losses given default over the period 1982--2010 and find significant evidence of parameter variation in the underlying beta distribution.
- Language
-
Englisch
- Bibliographic citation
-
Series: Tinbergen Institute Discussion Paper ; No. 14-010/IV/DSF71
- Classification
-
Wirtschaft
Hypothesis Testing: General
Model Evaluation, Validation, and Selection
Single Equation Models; Single Variables: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- Subject
-
time-varying parameters
observation driven models
parameter driven models
structural breaks
generalized autoregressive score model
regime switching
credit risk
- Event
-
Geistige Schöpfung
- (who)
-
Calvori, Francesco
Creal, Drew
Koopman, Siem Jan
Lucas, Andre
- Event
-
Veröffentlichung
- (who)
-
Tinbergen Institute
- (where)
-
Amsterdam and Rotterdam
- (when)
-
2014
- Handle
- Last update
-
10.03.2025, 11:42 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Calvori, Francesco
- Creal, Drew
- Koopman, Siem Jan
- Lucas, Andre
- Tinbergen Institute
Time of origin
- 2014
Other Objects (12)
Forecasting the U.S. Term Structure of Interest Rates using a Macroeconomic Smooth Dynamic Factor Model
Beta observation-driven models with exogenous regressors: a joint analysis of realized correlation and leverage effects
Bayesian Dynamic Modeling of High-Frequency Integer Price Changes
Likelihood-based Analysis for Dynamic Factor Models
A Forty Year Assessment of Forecasting the Boat Race
Finding the European crime drop using a panel data model with stochastic trends
The Analysis of Stochastic Volatility in the Presence of Daily Realised Measures
Fast Efficient Importance Sampling by State Space Methods
Time Series Modelling of Daily Tax Revenues
Forecasting the Variability of Stock Index Returns with Stochastic Volatility Models and Implied Volatility
Time Series Models with a Common Stochastic Variance for Analysing Economic Time Series
Seasonality with Trend and Cycle Interactions in Unobserved Components Models
Forecasting the U.S. Term Structure of Interest Rates using a Macroeconomic Smooth Dynamic Factor Model
Beta observation-driven models with exogenous regressors: a joint analysis of realized correlation and leverage effects
Bayesian Dynamic Modeling of High-Frequency Integer Price Changes
Likelihood-based Analysis for Dynamic Factor Models
A Forty Year Assessment of Forecasting the Boat Race
Finding the European crime drop using a panel data model with stochastic trends
The Analysis of Stochastic Volatility in the Presence of Daily Realised Measures
Fast Efficient Importance Sampling by State Space Methods
Time Series Modelling of Daily Tax Revenues
Forecasting the Variability of Stock Index Returns with Stochastic Volatility Models and Implied Volatility
Time Series Models with a Common Stochastic Variance for Analysing Economic Time Series
Seasonality with Trend and Cycle Interactions in Unobserved Components Models
Forecasting the U.S. Term Structure of Interest Rates using a Macroeconomic Smooth Dynamic Factor Model
Beta observation-driven models with exogenous regressors: a joint analysis of realized correlation and leverage effects
Bayesian Dynamic Modeling of High-Frequency Integer Price Changes
Likelihood-based Analysis for Dynamic Factor Models
A Forty Year Assessment of Forecasting the Boat Race
Finding the European crime drop using a panel data model with stochastic trends
The Analysis of Stochastic Volatility in the Presence of Daily Realised Measures
Fast Efficient Importance Sampling by State Space Methods
Time Series Modelling of Daily Tax Revenues
Forecasting the Variability of Stock Index Returns with Stochastic Volatility Models and Implied Volatility
Time Series Models with a Common Stochastic Variance for Analysing Economic Time Series