AVERAGING ESTIMATORS FOR REGRESSIONS WITH A POSSIBLE STRUCTURAL BREAK

This paper investigates selection and averaging of linear regressions with a possible structural break. Our main contribution is the construction of a Mallows criterion for the structural break model. We show that the correct penalty term is nonstandard and depends on unknown parameters, but it can be approximated by an average of limiting cases to yield a feasible penalty with good performance. Following Hansen (2007, <italic>Econometrica</italic> 75, 1175–1189) we recommend averaging the structural break estimates with the no-break estimates where the weight is selected to minimize the Mallows criterion. This estimator is simple to compute, as the weights are a simple function of the ratio of the penalty to the Andrews SupF test statistic.