Testing for Structural Change in Heterogeneous Panels with an Application to the Euro's Trade Effect
This paper presents a structural change test for panel data models in which the break (or the change) affects some, but not all, cross-section units in the panel. The test is robust to non-normal, heteroskedastic and autocorrelated errors, as well as end-of-sample structural change. The test amounts to computing and comparing pre- and post-break sample statistics as Chow (1960) type F statistics averaged over cross-section units. The cases of known and unknown break date are both considered. Under mild assumptions, the test has a limiting standard normal distribution as the number of cross-sections tends to infinity. Monte Carlo experiments show that the test has good size and power under a wide range of circumstances, including when the break date is unknown and differs across individual units, and when errors exhibit cross-section dependence. Finally, the test is illustrated by seeking a break in the dynamics of trade among euro area countries following the introduction of the euro.
Year of publication: |
2012
|
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Authors: | Pauwels Laurent L. ; Felix, Chan ; Tommaso, Mancini Griffoli |
Published in: |
Journal of Time Series Econometrics. - De Gruyter, ISSN 1941-1928. - Vol. 4.2012, 2, p. 1-35
|
Publisher: |
De Gruyter |
Saved in:
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