Structural breaks in the volatility of macroeconomic and financial data: The rule, not the exception

In this paper we look at the empirical evidence in favor of structural breaks in the conditional volatility of some important macroeconomic and financial time series like currency returns, stock returns, output and inflation. We find strong evidence of both structural breaks and long memory in the break-free series. We use a variety of econometric methodologies, both parametric and non-parametric, in order to verify the robustness of our findings, which provide strong empirical evidence in favor of the Theory of Rational Beliefs.