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, generalizations are discussed for binary and multivariate dependent variables as well as model-based permutation testing for structural change. The procedures suggested are illustrated using both artificial and real-world data (number of youth homicides, employment discrimination data, structural-change publications, and stock returns).