Structural Breakpoint Tests in a Markov-Switching Model: An Empirical Application to the EMU Member Countries

This paper aims to estimate a dynamic non-linear model with statedependent mean and volatility for the real GDP growth series of several EMU member countries. We test the existence of a structural breakpoint at the starting point of the monetary union. We reject the null of parameter constancy for the Markov-switching model for only eight countries. Given the small length of the subsample after monetary union available for analysis, we proceed to analyze the empirical power of our test for a grid of alternatives. We conclude that our test is powerful enough if the null and the alternative are sufficiently far apart.