Estimation of Heterogeneous Panels with Structural Breaks

Badi Baltagi, Qu Feng and Chihwa Kao

No 179, Center for Policy Research Working Papers from Center for Policy Research, Maxwell School, Syracuse University

Abstract: This paper extends Pesaran's (2006) work on common correlated effects (CCE) estimators for large heterogeneous panels with a general multifactor error structure by allowing for unknown common structural breaks. Structural breaks due to new policy implementation or major technological shocks, are more likely to occur over a longer time span. Consequently, ignoring structural breaks may lead to inconsistent estimation and invalid inference. We propose a general framework that includes heterogeneous panel data models and structural break models as special cases. The least squares method proposed by Bai (1997a, 2010) is applied to estimate the common change points, and the consistency of the estimated change points is established. We find that the CCE estimator has the same asymptotic distribution as if the true change points were known. Additionally, Monte Carlo simulations are used to verify the main results of this paper.

Keywords: Heterogeneous Panels; Cross-sectional Dependence; Structural Breaks; Common Correlated Effects (search for similar items in EconPapers)
JEL-codes: C23 C33 (search for similar items in EconPapers)
Pages: 68 pages
Date: 2015-03
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://surface.syr.edu/cpr/213/ (application/pdf)

Related works:
Journal Article: Estimation of heterogeneous panels with structural breaks (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:max:cprwps:179

Access Statistics for this paper

More papers in Center for Policy Research Working Papers from Center for Policy Research, Maxwell School, Syracuse University 426 Eggers Hall, Syracuse, New York USA 13244-1020. Contact information at EDIRC.
Bibliographic data for series maintained by Katrina Fiacchi ().