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Econometrics 2017, 5(1), 12; doi:10.3390/econometrics5010012

Testing for a Structural Break in a Spatial Panel Model

Bates White Economic Consulting, 1300 Eye street NW Washington DC 20005, USA
Academic Editor: Pierre Perron
Received: 28 August 2016 / Accepted: 24 February 2017 / Published: 6 March 2017
(This article belongs to the Special Issue Unit Roots and Structural Breaks)
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Abstract

We consider the problem of testing for a structural break in the spatial lag parameter in a panel model (spatial autoregressive). We propose a likelihood ratio test of the null hypothesis of no break against the alternative hypothesis of a single break. The limiting distribution of the test is derived under the null when both the number of individual units N and the number of time periods T is large or N is fixed and T is large. The asymptotic critical values of the test statistic can be obtained analytically. We also propose a break-date estimator that can be employed to determine the location of the break point following evidence against the null hypothesis. We present Monte Carlo evidence to show that the proposed procedure performs well in finite samples. Finally, we consider an empirical application of the test on budget spillovers and interdependence in fiscal policy within the U.S. states. View Full-Text
Keywords: panel model; structural change; spatial econometrics; spatio-temporal; U.S. state budget panel model; structural change; spatial econometrics; spatio-temporal; U.S. state budget
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

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Sengupta, A. Testing for a Structural Break in a Spatial Panel Model. Econometrics 2017, 5, 12.

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