Bootstrap-based tests for deterministic time-varying coefficients in regression models

The problem of structural change justifiably attracts considerable attention in econometrics. A number of different paradigms have been adopted, ranging from structural breaks which are sudden and rare, to time-varying coefficient models, which exhibit structural change more frequently and continuously. This paper is concerned with parametric econometric models whose coefficients change deterministically and smoothly over time. In particular, tests for the null hypothesis of no structural change versus the alternative hypothesis of smooth deterministic structural change are provided and discussed. The use of bootstrap tests is advocated. These tests perform well in an extensive Monte Carlo study.