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A SPECTRAL-BASED CUSUM TEST OF EVOLUTIONARY CHANGE

Published online by Cambridge University Press:  29 June 2002

Phillip Wild
Affiliation:
University of Manchester and CEPM, University of Queensland
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Abstract

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We develop a test of evolutionary change that incorporates a null hypothesis of homogeneity, which encompasses time invariance in the variance and autocovariance structure of residuals from estimated econometric relationships. The test framework is based on examining whether shifts in spectral decomposition between two frames of data are significant. Rejection of the null hypothesis will point not only to weak nonstationarity but to shifts in the structure of the second-order moments of the limiting distribution of the random process. This would indicate that the second-order properties of any underlying attractor set has changed in a statistically significant way, pointing to the presence of evolutionary change. A demonstration of the test's applicability to a real-world macroeconomic problem is accomplished by applying the test to the Australian Building Society Deposits (ABSD) model.

Information

Type
Research Article
Copyright
© 2002 Cambridge University Press