One-Sided Test for an Unknown Breakpoint: Theory, Computation, and Application to Monetary Theory

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One-Sided Test for an Unknown Breakpoint: Theory, Computation, and Application to Monetary Theory

November 2005 Number 232

JEL classification: C12, C22, E52

Authors: Arturo Estrella and Anthony P. Rodrigues

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.

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