Stability Tests for Heterogeneous Panel Data

Felix Chan, Tommaso Mancini-Griffoli and Laurent Pauwels
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Tommaso Mancini-Griffoli: Swiss National Bank, Paris School of Economics (PSE), CEPREMAP

No 92008, Working Papers from Hong Kong Institute for Monetary Research

Abstract: This paper proposes a new test for structural stability in panels by extending the testing procedure proposed in the seminal work of Andrews (2003) originally developed for time series. The test is robust to non-normal, heteroskedastic and serially correlated errors, and, importantly, allows for the number of post break observations to be small. Moreover, the test accommodates the possibility of a break affecting only some - and not all - individuals of the panel. Under mild assumptions the test statistic is shown to be asymptotically normal, thanks to the cross sectional dimension of panel data. This greatly facilitates the calculation of critical values with respect to the test's time series counterpart. Monte Carlo experiments show that the test has good size and power under a wide range of circumstances. Finally, the test is illustrated in practice, in a brief study of the euro's effect on trade.

Keywords: Structural Change; Instability; Cross Sectionally Dependent Errors; Heterogeneous Panels; Monte Carlo; Euro Effect on Trade (search for similar items in EconPapers)
JEL-codes: C23 C52 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2008-09
New Economics Papers: this item is included in nep-ecm
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Stability Tests for Heterogeneous Panel Data (2006)
Working Paper: Stability tests for heterogeneous panel data (2006)
Working Paper: Stability tests for heterogeneous panel data (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:hkm:wpaper:092008

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