U.S.-Austria Cooperative Research: Testing and Estimation ofModels with Structural Change

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This award supports Professor Donald Andrews of Yale University to collaborate in economics research with Professor Werner Ploberger of the Institute of Econometrics and Operations Research of the Technical University of Vienna, Austria. These investigators began joint studies in the econometrics of structural change during a 1991 visit to Yale University by Dr. Ploberger. They produced two papers establishing new optimal tests for situations with an unknown changepoint and for testing problems when a nuisance parameter appears only under the alternative. Now that Dr. Ploberger has returned to Vienna, they propose to continue their collaborative research focusing on several related topics. These include: 1) further analysis of the properties of the optimal tests; 2) treatment of tests of multiple structural changes; 3) estimation of breakpoints; and 4) inadmissibility of likelihood ratio tests in this context. This joint effort links one of the leading young econometricians of the U.S. with a highly regarded European colleague to pursue state of the art research in theoretical and applied economics. This collaborative research is likely to advance both econometric theory and practice. Among the methods which will be developed are some especially useful for applied economics research when the basic relationships being analyzed change dramatically. One such area is the important research being done on the economic implications of global climate change.