Determination of the Number of Breaks in Heterogeneous Panel Data Models

Abstract

This paper considers a heterogeneous panel data model with an unknown number of breaks. We propose a so-called two-stage procedure to determine the number of breaks and detect the location of break points. The consistency of the estimated number of breaks and the estimated break points are established under fairly general conditions. Monte Carlo simulations and two empirical applications are provided to demonstrate the finite sample performance of the proposed method.