Structural change tests for simulated method of moments

Simulation-based estimation methods have become more widely used in recent years. We propose a set of tests for structural change in models estimated via simulated method of moments (see Duffe and Singleton (Econometrica 61 (1993) 929). These tests extend the work of Andrews (Econometrica 61 (1993) 821), Ghysels et al. (J. Econom. 82 (1997) 209) and Sowell (Econometrica 64 (1996) 1085; Tests for Violation of Moment Conditions, Manuscript, Graduate School of Industrial Administration, Carnegie mellon University) which covered generalized method of moments estimators not involving simulation. We derive the asymptotic distributions of various tests. We show that the number of simulations does not affect the asymptotic distribution under the null but adversely influences local asymptotic power. A Monte-Carlo investigation of the finite sample size and power reveals that a relatively small number of simulations suffices to obtain tests with desirable small sample size and power properties.