One-Sided Test for an Unknown Breakpoint: Theory, Computation, and Application to Monetary Theory
25 Pages Posted: 30 Nov 2005
Date Written: November 2005
The econometrics literature contains a variety of two-sided tests for unknown breakpoints in time-series models with one or more parameters. This paper derives an analogous one-sided test that takes into account the direction of the change for a single parameter. In particular, we propose a sup t statistic, which is distributed as a normalized Brownian bridge. The method is illustrated by testing whether the reaction of monetary policy to inflation has increased since 1959.
Keywords: break test, monetary policy reaction function
JEL Classification: C12, C22, E52
Suggested Citation: Suggested Citation