Potential Pitfalls in Determining Multiple Structural Changes With an Application to Purchasing Power Parity
识别多重结构变化的潜在陷阱及其在购买力平价中的应用
We investigate the empirical performance of the Bai and Perron multiple structural change tests and show that the use of their critical values may cause severe size distortions in persistent series. To correct these size distortions while maintaining a good power, we implement the Bai structural change test and extend it in two directions, developing a new procedure to choose the number of breaks and a restricted version that specifically models breaks that imply mean or…