Abstract
Recent studies have found that regime switching model with rare shift is easily confused with long memory in terms of the behavior of autocorrelations. In this study, our goal is to distinguish regime switching models from long memory models. Several semi-parametric procedures are developed for testing long memory against structure change. The proposed tests are derived based on the transformed data after applying a high pass filter. A simulation study is conducted to investigate the performance of proposed tests. Nile River data and foreign exchange rate data are used for illustrations.