Structural break

In econometrics and statistics, a structural break is an unexpected change over time in the parameters of regression models, which can lead to huge forecasting errors and unreliability of the model in general. This issue was popularised by David Hendry, who argued that lack of stability of coefficients frequently caused forecast failure, and therefore we must routinely test for structural stability. Structural stability − i.e., the time-invariance of regression coefficients − is a central issue in all applications of linear regression models. For linear regression models, the Chow test is often used to test for a single break in mean at a known time period K for K ∈ . This test assesses whether the coefficients in a regression model are the same for periods and .