User:Soobrickay/Test for structural change

In econometrics, and other related statistical disciplines, structural change occurs when the parameters of a regression "do not remain the same through the entire time period", or in the case of cross-sectional data, between the entities from which data has been obtained. This change may arise from various factors. For example, the marginal propensity to save in the United States may have changed over the period 1970-95 as a result of events such as the 1973 and 1979 oil crises, President Reagan's changes to tax policy, or many other phenomena. The occurence of structural change indicates that we cannot accurately model the data under examination without somehow incorporating the change in parameters into our model.

Chow Test
The classical test for structural change is the Chow test. Suppose we wish to investigate whether structural change has occured over the period 19-95 for the following regression:

The Chow test assumes that the error terms of