Testing for structural changes in panel data models with interactive fixed effects via discrete Fourier transform
基于离散傅里叶变换检验交互固定效应面板模型的结构变化AI 解读 ↓
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基于离散傅里叶变换检验交互固定效应面板模型的结构变化AI 解读 ↓
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We propose a discrete Fourier transform (DFT)-based test for detecting structural changes in panel data models with interactive fixed effects (IFE). When structural changes are present but ignored, the conventional asymptotic distribution of the least squares (LS) estimator of Bai (2009) may no longer provide reliable inference, and the resulting residuals contain signals of parameter instability. Our test exploits this feature by comparing the DFT of weighted residuals to the flat (zero) spectrum implied under the null hypothesis of no structural change. We establish the theoretical properties of the test, including its asymptotic null distribution and its local and global power, and propose a bootstrap procedure for valid inference in finite samples. Notably, the proposed test can detect a class of local alternatives converging to the null at the rate of {N}^{-1/2}{T}^{-1/2}, matching the convergence rate of the slope estimators, where N and T are the cross-sectional and time dimensions, respectively. Monte Carlo simulations demonstrate the excellent performance of the proposed test across various types of structural changes in both factor loadings and slope coefficients. We further illustrate the empirical relevance of our method by applying it to the environmental Kuznets curve and the relationship between health expenditure and income. Our findings highlight the importance of accounting for structural changes in panel data models with IFE.