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Jurgen A. Doornik, David F. Hendry, and Felix Pretis
Economics Department and Institute for New Economic Thinking
at the Oxford Martin School, Oxford University, UK
Department of Economics
Discussion Paper Series
Using an extenstion of general-to-specific modelling, based on the recent developments of impuse-indication saturation (ISS), we consider selecting significant step inidcators from a saturating set to capture location shifts. The approximate non-centrality of the test is derived for a variety of shifts using a 'split-half' analysis, the simplest specialization of a multiple-block search algorithm. Monte Carlo simulations confirm the accuracy of the nominal significance levels under the null, and show rejections when location shifts occur, improving in a non-null rejection frequency compared to the corresponding ISS-based and to Chow (1960) tests.