Structural changes in heterogeneous panels with endogenous regressors

Structural changes in heterogeneous panels with endogenous regressors

This paper extends Pesaran's (Econometrica, 2006, 74, 967–1012) common correlated effects (CCE) by allowing for endogenous regressors in large heterogeneous panels with unknown common structural changes in slopes and error factor structure. Since endogenous regressors and structural breaks are...

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Bibliographic Details
Main Authors: Baltagi, Badi H., Feng, Qu, Kao, Chihwa
Other Authors: School of Social Sciences
Format: Article
Language:English
Published: 2021
Subjects:
Social sciences::Economic theory
Data Models
Inference
Online Access:https://hdl.handle.net/10356/147538
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Institution: Nanyang Technological University
Language: English
Description
Summary:This paper extends Pesaran's (Econometrica, 2006, 74, 967–1012) common correlated effects (CCE) by allowing for endogenous regressors in large heterogeneous panels with unknown common structural changes in slopes and error factor structure. Since endogenous regressors and structural breaks are often encountered in empirical studies with large panels, this extension makes Pesaran's CCE approach empirically more appealing. In addition to allowing for slope heterogeneity and cross-sectional dependence, we find that Pesaran's CCE approach is also valid when dealing with unobservable factors in the presence of endogenous regressors and structural changes in slopes and error factor loadings. This is supported by Monte Carlo experiments.

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