Errors-in-variables jump regression using local clustering.

Errors-in-variables (EIV) regression is widely used in econometric models. The statistical analysis becomes challenging when the regression function is discontinuous and the distribution of measurement error is unknown. In the literature, most existing jump regression methods either assume that there is no measurement error involved or require that jumps are explicitly detected before the regression function can be estimated. In some applications, however, the ultimate goal is to estimate the regression function and to preserve the jumps in the process of estimation. In this paper, we are concerned with reconstructing jump regression curve from data that involve measurement error. We propose a direct jump-preserving method that does not explicitly detect jumps. The challenge of restoring jump structure masked by measurement error is handled by local clustering. Theoretical analysis shows that the proposed curve estimator is statistically consistent. A numerical comparison with an existing jump regression method highlights its jump-preserving property. Finally, we demonstrate our method by an application to a health tax policy study in Australia.