Stability tests for heterogeneous panel data

Felix Chan, Tommaso Mancini-Griffoli and Laurent Pauwels
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Tommaso Mancini-Griffoli: PJSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique

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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; changement structurel; instabilité en fin d'échantillon; panel hétérogènes; effets de l'Euro sur le commerce européen (search for similar items in EconPapers)
Date: 2006-12
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00589114v1
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Related works:
Working Paper: Stability Tests for Heterogeneous Panel Data (2008)
Working Paper: Stability Tests for Heterogeneous Panel Data (2006)
Working Paper: Stability tests for heterogeneous panel data (2006)
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