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Stationary bootstrapping for common mean change detection in cross-sectionally dependent panels

Author

Listed:
  • Eunju Hwang

    (Gachon University)

  • Dong Wan Shin

    (Ewha University)

Abstract

Stationary bootstrapping is applied to a CUSUM test for common mean break detection in cross-sectionally correlated panel data. Asymptotic null distribution of the bootstrapped test is derived, which is the same as that of the original CUSUM test depending on cross-sectional correlation parameter. A bootstrap test using the CUSUM test with bootstrap critical values is proposed and its asymptotic validity is proved. Finite sample Monte-Carlo simulation shows that the proposed test has reasonable size while other existing tests have severe size distortion under cross-section correlation. The simulation also shows good power performance of the proposed test against non-cancelling mean changes. The simulation also shows that the theoretically justified stationary bootstrapping CUSUM test has comparable size and power relative to other, theoretically unjustified, moving block or tapered block bootstrapping CUSUM tests.

Suggested Citation

  • Eunju Hwang & Dong Wan Shin, 2017. "Stationary bootstrapping for common mean change detection in cross-sectionally dependent panels," Metrika: International Journal for Theoretical and Applied Statistics, Springer, vol. 80(6), pages 767-787, November.
    • Handle: RePEc:spr:metrik:v:80:y:2017:i:6:d:10.1007_s00184-017-0627-y
    DOI: 10.1007/s00184-017-0627-y
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    References listed on IDEAS

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