Change Point Estimation in Panel Data with Time-Varying Individual Effects

Research output: Working paperOther research output

Abstract

This paper proposes a method for estimating multiple change points in panel data models with unobserved individual effects via ordinary least-squares (OLS). Typically, in this setting, the OLS slope estimators are inconsistent due to the unobserved individual effects bias. As a consequence, existing methods remove the individual effects before change point estimation through data transformations such as first-differencing. We prove that under reasonable assumptions, the unobserved individual effects bias has no impact on the consistent estimation of change points. Our simulations show that since our method does not remove any variation in the dataset before change point estimation, it performs better in small samples compared to first-differencing methods. We focus on short panels because they are commonly used in practice, and allow for the unobserved individual effects to vary over time. Our method is illustrated via two applications: the environmental Kuznets curve and the U.S. house price expectations after the financial crisis.
Original languageEnglish
Place of PublicationIthaca
PublisherCornell University Library
Publication statusPublished - 2018

Publication series

NamearXiv
Volume1808.03109

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Change point
Time-varying
Individual effects
Panel data
Ordinary least squares
Environmental Kuznets curve
Price expectations
Financial crisis
House prices
Simulation
Small sample
Least squares estimator
Data transformation

Cite this

Boldea, O., Drepper, B., & Gan, Z. (2018). Change Point Estimation in Panel Data with Time-Varying Individual Effects. (arXiv; Vol. 1808.03109). Ithaca: Cornell University Library.
Boldea, Otilia ; Drepper, Bettina ; Gan, Zhuojiong. / Change Point Estimation in Panel Data with Time-Varying Individual Effects. Ithaca : Cornell University Library, 2018. (arXiv).
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Boldea, O, Drepper, B & Gan, Z 2018 'Change Point Estimation in Panel Data with Time-Varying Individual Effects' arXiv, vol. 1808.03109, Cornell University Library, Ithaca.

Change Point Estimation in Panel Data with Time-Varying Individual Effects. / Boldea, Otilia; Drepper, Bettina; Gan, Zhuojiong.

Ithaca : Cornell University Library, 2018. (arXiv; Vol. 1808.03109).

Research output: Working paperOther research output

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