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Panel kink regression with an unknown threshold

Yonghui Zhang, Qiankun Zhou and Li Jiang

Economics Letters, 2017, vol. 157, issue C, 116-121

Abstract: In this paper, we extend the kink regression model with an unknown threshold in Hansen (2017) to the panel data framework, where the cross-sectional dimension (N) goes to infinity and the time period (T) is fixed. Following the literature of threshold regressions, we propose an estimator based on the within-group transformation. Under fixed threshold effect assumption, we establish that the slope and threshold estimators are jointly normally distributed with the same convergence rate OpN−1∕2 and a non-zero asymptotic covariance. We also suggest a sup-Wald test for the presence of kink effect, and derive its limiting distribution. A bootstrap procedure is proposed to obtain the bootstrap p-values to improve the finite sample performance of the test. Monte Carlo simulations show that the FE estimator and the sup-Wald test perform quite well in estimating the unknown parameters and testing for kink effect, respectively.

Keywords: Panel data; Fixed effects; Kink regression; Unknown threshold; Testing for kink effect (search for similar items in EconPapers)
JEL-codes: C12 C13 C15 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:eee:ecolet:v:157:y:2017:i:c:p:116-121