Bd. Wood, Weak theories and parameter instability: Using flexible least squares to take time varying relationships seriously, AM J POL SC, 44(3), 2000, pp. 603-618
A common assumption by time-series: analysts is that the estimated coeffici
ents remain fixed through time. Yet this strong assumption often has little
grounds in substantive theory or empirical tests. If the true coefficients
change over time, but are estimated with fixed-coefficient methods such as
Ordinary Least Squares (OLS) or its many offshoots, then this can lead to
significant information loss, as well as errors of inference. This article
demonstrates a method, Flexible Least Squares (FLS), for exploring the rela
tive stability of time-series coefficients. FLS is superior to other such m
ethods in that it enables the analyst to diagnose the magnitude of coeffici
ent variation and detect which particular coefficients are changing. FLS al
so provides an estimated vector of time-varying coefficients for explorator
y or descriptive purposes. FLS properties are demonstrated through simulati
on analysis and an evaluation of the time-varying characteristics of;explan
ations of presidential approval from 1978 to 1997.