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.
Document Type
Working Paper
Date
2-2011
Keywords
Structural change, Panel cointegration, Common stochastic trends, Functional Central Limit Theorem
Series
Working Papers Series
Disciplines
Economics
Recommended Citation
Kao, Chihwa; Trapani, Lorenzo; and Urga, Giovanni, "Testing for Breaks in Cointegrated Panels with Common and Idiosyncratic Stochastic Trends" (2011). Center for Policy Research. 162.
https://surface.syr.edu/cpr/162
Source
local input
Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.
Additional Information
Working paper no. 129