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Estimation of Panel Data Models with Interactive Effects and Multiple Structural Breaks When T Is Fixed

Kaddoura, Yousef LU and Westerlund, Joakim LU (2021) In Working Papers
Abstract
In this article, we propose a new estimator of panel data models with interactive fixed effects and multiple structural breaks that is suitable when the number of time periods, T, is fixed and only the number of cross-sectional units, N, is large. This is done by viewing the determination of the breaks as a shrinkage problem, and to estimate both the regression coefficients, and the number of breaks and their locations by applying a version of the Lasso approach. We show that with probability approaching one the approach can correctly determine the number of breaks and the dates of these breaks, and that the estimator of the regime-specific regression coefficients is consistent and asymptotically normal. We also provide Monte Carlo results... (More)
In this article, we propose a new estimator of panel data models with interactive fixed effects and multiple structural breaks that is suitable when the number of time periods, T, is fixed and only the number of cross-sectional units, N, is large. This is done by viewing the determination of the breaks as a shrinkage problem, and to estimate both the regression coefficients, and the number of breaks and their locations by applying a version of the Lasso approach. We show that with probability approaching one the approach can correctly determine the number of breaks and the dates of these breaks, and that the estimator of the regime-specific regression coefficients is consistent and asymptotically normal. We also provide Monte Carlo results suggesting that the approach performs very well in small samples, and empirical results suggesting that the coefficients of the deterrence model of crime are not constant as typically assumed but subject to structural change. (Less)
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author
and
organization
publishing date
type
Working paper/Preprint
publication status
published
subject
keywords
Panel data, Interactive effects, Common factors, Structural change, Lasso, C13, C23, C33, K42
in
Working Papers
issue
2021:15
pages
51 pages
language
English
LU publication?
yes
id
f7cbabbc-9366-4293-8aef-8a1ae0f7db08
date added to LUP
2021-11-16 14:39:57
date last changed
2024-03-14 14:52:06
@misc{f7cbabbc-9366-4293-8aef-8a1ae0f7db08,
  abstract     = {{In this article, we propose a new estimator of panel data models with interactive fixed effects and multiple structural breaks that is suitable when the number of time periods, T, is fixed and only the number of cross-sectional units, N, is large. This is done by viewing the determination of the breaks as a shrinkage problem, and to estimate both the regression coefficients, and the number of breaks and their locations by applying a version of the Lasso approach. We show that with probability approaching one the approach can correctly determine the number of breaks and the dates of these breaks, and that the estimator of the regime-specific regression coefficients is consistent and asymptotically normal. We also provide Monte Carlo results suggesting that the approach performs very well in small samples, and empirical results suggesting that the coefficients of the deterrence model of crime are not constant as typically assumed but subject to structural change.}},
  author       = {{Kaddoura, Yousef and Westerlund, Joakim}},
  keywords     = {{Panel data; Interactive effects; Common factors; Structural change; Lasso; C13; C23; C33; K42}},
  language     = {{eng}},
  note         = {{Working Paper}},
  number       = {{2021:15}},
  series       = {{Working Papers}},
  title        = {{Estimation of Panel Data Models with Interactive Effects and Multiple Structural Breaks When T Is Fixed}},
  url          = {{https://lup.lub.lu.se/search/files/177122361/WP21_15.pdf}},
  year         = {{2021}},
}