A Toolbox of Permutation Tests for Structural Change

The supLM test for structural change is embedded into a permutation test framework for a simple location model. The resulting conditional permutation distribution is compared to the usual (unconditional) asymptotic distribution, showing that the power of the test can be clearly improved in small samples. Furthermore, the permutation test is embedded into a general framework that encompasses tools for binary and multivariate dependent variables as well as model-based permutation testing for structural change. It is also demonstrated that the methods can not only be employed for analyzing structural changes in time series data but also for recursive partitioning of cross section data. The procedures suggested are illustrated using both artificial data and empirical applications (number of youth homicides, employment discrimination data, carbon flux in tropical forests, stock returns, and demand for economics journals).