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Stability Tests for Heterogeneous Panel Data

Felix Chan Tommaso Mancini-Griffoli Laurent L. Pauwels
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Felix Chan Tommaso Mancini-Griffoli Laurent L. Pauwels: School of Economics and Finance, Curtin University of Technology Paris-Jourdan Sciences Economiques (PSE), CEPREMAP Hong Kong Monetary Authority and Graduate Institute of International Studies, Geneva

Authors registered in the RePEc Author Service: Laurent L. Pauwels () and Felix Chan ()

No 24-2006, IHEID Working Papers from Economics Section, The Graduate Institute of International Studies

Abstract: This paper proposes a new test for structural instability in heterogeneous panels. The test builds on the seminal work of Andrews (2003) originally developed for time series. It is robust to non-normal, heteroskedastic and serially correlated errors, and allows for the number of post break observations to be small. Importantly, the test considers the alternative 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 additional cross sectional dimension of panel data. This greatly facilitates the calculation of critical values. Monte Carlo experiments show that the test has good size and power under a wide range of circumstances. The test is then applied to investigate the effect of the Euro on trade.

Keywords: Structural change; end-of-sample instability tests; 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: 22
Date: 2006-10, Revised 2006-12
New Economics Papers: this item is included in nep-ecm and nep-ets
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http://repec.graduateinstitute.ch/pdfs/Working_papers/HEIWP24-2006.pdf (application/pdf)

Related works:
Working Paper: Stability Tests for Heterogeneous Panel Data (2008) Downloads
Working Paper: Stability tests for heterogeneous panel data (2006) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:gii:giihei:heiwp24-2006

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