Stationary bootstrapping for common mean change detection in cross-sectionally dependent panels

Eunju Hwang and Dong Wan Shin ()
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Eunju Hwang: Gachon University
Dong Wan Shin: Ewha University

Metrika: International Journal for Theoretical and Applied Statistics, 2017, vol. 80, issue 6, No 10, 767-787

Abstract: Abstract Stationary bootstrapping is applied to a CUSUM test for common mean break detection in cross-sectionally correlated panel data. Asymptotic null distribution of the bootstrapped test is derived, which is the same as that of the original CUSUM test depending on cross-sectional correlation parameter. A bootstrap test using the CUSUM test with bootstrap critical values is proposed and its asymptotic validity is proved. Finite sample Monte-Carlo simulation shows that the proposed test has reasonable size while other existing tests have severe size distortion under cross-section correlation. The simulation also shows good power performance of the proposed test against non-cancelling mean changes. The simulation also shows that the theoretically justified stationary bootstrapping CUSUM test has comparable size and power relative to other, theoretically unjustified, moving block or tapered block bootstrapping CUSUM tests.

Keywords: Bootstrap test; Common panel mean change; Cross-section correlation; Size distortion; Stationary bootstrapping (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s00184-017-0627-y

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