I want to use Hansen(1992,1996) LR test against the null hypothesis of single regime model. But I don't know how to apply it in eviews is there any way...or how to do it manually...please do help me
You can also use the stata command in switching regression model. It creates the Hansen test automatically.
Thanks @ Mwoya Byaro for the answer but is there any alternative in eviews of this LR test
Komal Jindal
The Hansen LR test is used to test the null hypothesis of a single regime model against the alternative hypothesis of a multiple regime model. Here are some steps to apply the Hansen LR test manually: Estimate the single regime model and obtain the log-likelihood value. Estimate the multiple regime model and obtain the log-likelihood value.
Calculate the test statistic using the formula: LR = T[ln(L1) - ln(L0)], where T is the sample size, L1 is the log-likelihood value of the multiple regime model, and L0 is the log-likelihood value of the single regime model.
Calculate the p-value of the test statistic using the chi-squared distribution with degrees of freedom equal to the number of additional parameters in the multiple regime model. Compare the p-value to the significance level to determine whether to reject or fail to reject the null hypothesis.
To apply the Hansen LR test in Eviews, you can follow these steps:
Estimate the single regime model and save the residuals. Estimate the multiple regime model and save the residuals. Open the residual series of the single regime model and click on "View/Graph". Open the residual series of the multiple regime model and click on "View/Graph". Click on "Proc/View Results/Tests for Structural Change/Hansen Test". Select the two residual series and click on "OK". Eviews will display the test statistic and p-value. Note that the Hansen LR test requires a three-dimensional grid search, which can be computationally intensive.
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