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Testing for Breaks in Cointegrated Panels

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Abstract

We investigate the issue of testing for structural breaks in large cointegrated panels with common and idiosyncratic regressors. We prove a panel Functional Central Limit Theorem. We show that the estimated coefficients of the common regressors have a mixed normal distribution, whilst the estimated coefficients of the idiosyncratic regressors have a normal distribution. We consider strong dependence across the idiosyncratic regressors by allowing for the presence of (stationary and nonstationary) common factors. We show that tests based on transformations of Wald-type statistics have power versus alternatives of order

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  • Chihwa Kao & Lorenzo Trapani & Giovanni Urga, 2012. "Testing for Breaks in Cointegrated Panels," Center for Policy Research Working Papers 135, Center for Policy Research, Maxwell School, Syracuse University.
  • Handle: RePEc:max:cprwps:135
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    Keywords

    Structural change; Panel cointegration; Common trends JEL codes: C23;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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