Journal of Time Series Econometrics
Editor-in-Chief: Hidalgo, Javier
CiteScore 2017: 0.25
SCImago Journal Rank (SJR) 2017: 0.236
Source Normalized Impact per Paper (SNIP) 2017: 0.682
Testing for Structural Change in Heterogeneous Panels with an Application to the Euro's Trade Effect
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.
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