Weighted Average Power Similar Tests for Structural Change for the Gaussian Linear Regression Model

Abstract

The average exponential tests for structural change of Andrews and Ploberger (Econometrica, 62, 1994) and Andrews, Lee and Ploberger (Journal of Econometrics 70, 1996) and modifications thereof maximize a weighted average power which incorporates specific weighting functions in order to make the resulting test statistics simple. Generalizations of these tests involve the numerical evaluation of (potentially) complicated integrals. In this paper we suggest a uniform Laplace approximation to evaluate weighted average power test statistics for which a simple closed form does not exist. We also show that a modification of the avg-F test is optimal under a very large class of weighting functions and can be written as a ratio of quadratic forms. Finally, we discuss how the computational burden of averaging over all possible change-points can be addressed.Linear Regression Model, Similar Tests, Invariant Tests, Structural Change, Weighted Average Power Tests, Laplace Approximation, Uniform Laplace Approximation.