Testing for Breaks in Cointegrated Panels
Chihwa Kao (),
Lorenzo Trapani () and
Giovanni Urga ()
No 135, Center for Policy Research Working Papers from Center for Policy Research, Maxwell School, Syracuse University
We investigate the issue of testing for structural breaks in large cointegrated panels with common and idiosyncratic regressors. We prove a panel Functional Central Limit Theorem. We show that the estimated coefficients of the common regressors have a mixed normal distribution, whilst the estimated coefficients of the idiosyncratic regressors have a normal distribution. We consider strong dependence across the idiosyncratic regressors by allowing for the presence of (stationary and nonstationary) common factors. We show that tests based on transformations of Wald-type statistics have power versus alternatives of order
Keywords: Structural change; Panel cointegration; Common trends JEL codes: C23 (search for similar items in EconPapers)
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