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A new test for common breaks in heterogeneous panel data models

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  • Jiang, Peiyun
  • Kurozumi, Eiji

Abstract

In this paper, we develop a new test to detect whether break points are common in heterogeneous panel data models where the time series dimension T could be large relative to cross-section dimension N. The error process is assumed to be cross-sectionally independent. The test is based on the cumulative sum (CUSUM) of ordinary least squares (OLS) residuals. We derive the asymptotic distribution of the detecting statistic under the null hypothesis, while proving the consistency of the test under the alternative. Monte Carlo simulations and an empirical example show good performance of the test.

Suggested Citation

  • Jiang, Peiyun & Kurozumi, Eiji, 2021. "A new test for common breaks in heterogeneous panel data models," Discussion paper series HIAS-E-107, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
    • Handle: RePEc:hit:hiasdp:hias-e-107
    Note: This version: May 20, 2021
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    CUSUM test; panel data; structural change; common breaks;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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