Document Type

Working Paper

Date

2-2011

Embargo Period

3-20-2012

Keywords

Structural change, Panel cointegration, Common stochastic trends, Functional Central Limit Theorem

Disciplines

Economics

Description/Abstract

In this paper, we develop tests for structural change in cointegrated panel regressions with common and idiosyncratic trends. We consider both the cases of observable and nonobservable common trends, deriving a Functional Central Limit Theorem for the partial sample estimators under the null of no break. We show that tests based on sup-Wald statistics are powerful versus breaks of size , also proving that power is present when the time of change differs across units and when only some units have a break. Our framework is extended to the case of cross correlated regressors and endogeneity. Monte Carlo evidence shows that the tests have the correct size and good power properties.

Source

local input

Included in

Economics Commons

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