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CRITICAL VALUES AND P VALUES OF BESSEL PROCESS DISTRIBUTIONS: COMPUTATION AND APPLICATION TO STRUCTURAL BREAK TESTS

Published online by Cambridge University Press:  24 September 2003

Arturo Estrella
Arturo Estrella
Affiliation:
Federal Reserve Bank of New York
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Abstract

The p values of structural break tests, when the break date or dates are unknown, must be calculated in terms of the probability distributions of functions of Bessel processes. The literature so far has maintained that direct computation of these p values and of the corresponding critical values is too difficult and has relied on approximations based on simulations, asymptotic expansions, or curve fitting. This paper presents a fast simple method of calculating exact p values and critical values and uses the method to evaluate the accuracy of the various approximations.The author is grateful for comments and suggestions from Don Andrews, Clint Cummins, Jeff Fuhrer, Ken Garbade, Jim Mahoney, Tony Rodrigues, Josh Rosenberg, Sebastian Schich, participants in a workshop at the Federal Reserve Bank of New York, and the referees. The views expressed in this paper are those of the author and do not necessarily represent those of the Federal Reserve Bank of New York or the Federal Reserve System.

Type
MISCELLANEA
Information
Econometric Theory , Volume 19 , Issue 6 , December 2003 , pp. 1128 - 1143
Copyright
© 2003 Cambridge University Press

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