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Journal of Time Series Econometrics

Editor-in-Chief: Hidalgo, Javier

2 Issues per year


Mathematical Citation Quotient (MCQ) 2016: 0.10

Online
ISSN
1941-1928
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Testing for Structural Change in Heterogeneous Panels with an Application to the Euro's Trade Effect

Laurent L. Pauwels
  • University of Sydney
/ Felix Chan
  • Curtin University
/ Tommaso Mancini Griffoli
  • Swiss National Bank
Published Online: 2012-11-14 | DOI: https://doi.org/10.1515/1941-1928.1141

Abstract

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.

Keywords: structural break; parameter stability; cross-section dependence; common correlated effects; gravity model; euro effect on trade

About the article

Published Online: 2012-11-14


Citation Information: Journal of Time Series Econometrics, ISSN (Online) 1941-1928, DOI: https://doi.org/10.1515/1941-1928.1141.

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©2012 Walter de Gruyter GmbH & Co. KG, Berlin/Boston. Copyright Clearance Center

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