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Econometrics 2017, 5(1), 4; doi:10.3390/econometrics5010004

Consistency of Trend Break Point Estimator with Underspecified Break Number

Department of Economics, University of Nevada, Reno, 1664 N. Virginia Street, Reno, NV 89557, USA
Academic Editor: Pierre Perron
Received: 31 August 2016 / Revised: 19 December 2016 / Accepted: 26 December 2016 / Published: 5 January 2017
(This article belongs to the Special Issue Unit Roots and Structural Breaks)
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Abstract

This paper discusses the consistency of trend break point estimators when the number of breaks is underspecified. The consistency of break point estimators in a simple location model with level shifts has been well documented by researchers under various settings, including extensions such as allowing a time trend in the model. Despite the consistency of break point estimators of level shifts, there are few papers on the consistency of trend shift break point estimators in the presence of an underspecified break number. The simulation study and asymptotic analysis in this paper show that the trend shift break point estimator does not converge to the true break points when the break number is underspecified. In the case of two trend shifts, the inconsistency problem worsens if the magnitudes of the breaks are similar and the breaks are either both positive or both negative. The limiting distribution for the trend break point estimator is developed and closely approximates the finite sample performance. View Full-Text
Keywords: deterministic trend; linear trend; multiple trend shifts; underspecified break number; Pitman drift; limiting distribution deterministic trend; linear trend; multiple trend shifts; underspecified break number; Pitman drift; limiting distribution
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

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Yang, J. Consistency of Trend Break Point Estimator with Underspecified Break Number. Econometrics 2017, 5, 4.

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