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DETECTION AND MODELING OF REGRESSION PARAMETER VARIATION ACROSS FREQUENCIES

WITH AN APPLICATION TO TESTING THE PERMANENT INCOME HYPOTHESIS

Published online by Cambridge University Press:  01 March 1999

Hui Boon Tan
Affiliation:
Universiti Putra Malaysia
Richard Ashley
Affiliation:
Virginia Polytechnic Institute and State University

Abstract

A simple technique for directly testing the parameters of a time-series regression model for instability across frequencies is presented. The method can be implemented easily in the time domain, so that parameter instability across frequency bands can be conveniently detected and modeled in conjunction with other econometric features of the problem at hand, such as simultaneity, cointegration, missing observations, and cross-equation restrictions. The usefulness of the new technique is illustrated with an application to a cointegrated consumption-income regression model, yielding a straightforward test of the permanent income hypothesis.

Type
Research Article
Copyright
© 1999 Cambridge University Press

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