Abstract
Panel data of our interest consist of a moderate number of panels, while the panels contain a small number of observations. An estimator of common breaks in panel means without a boundary issue for this kind of scenario is proposed. In particular, the novel estimator is able to detect a common break point even when the change happens immediately after the first time point or just before the last observation period. Another advantage of the elaborated change point estimator is that it results in the last observation in situations with no structural breaks. The consistency of the change point estimator in panel data is established. The results are illustrated through a simulation study. As a by-product of the developed estimation technique, a theoretical utilization for correlation structure estimation, hypothesis testing and bootstrapping in panel data is demonstrated. A practical application to non-life insurance is presented, as well.
Highlights
Introduction and Main AimsThe problem of an unknown common change in means of the panels is studied, where the panel data consist of N panels, and each panel contains T observations over time
Estimation of structural breaks can become an important mid-step in many statistical procedures, e.g., estimation of the panel correlation structure or bootstrapping in hypothesis testing for the change point
The change point problem in panel data with a fixed panel size is considered in this paper
Summary
The problem of an unknown common change in means of the panels is studied, where the panel data consist of N panels, and each panel contains T observations over time. Various values of the change are possible for each panel at some unknown common time τ = 1, . Within the panels, the observations are generally not assumed to be independent. This is in accordance with typical assumptions that one can make about real data. A common dependence structure is supposed to be present over the panels. Our main goal is to construct an estimator of a possible change point, which is consistent even in the case of no structural break
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