A self-normalization test for structural breaks in a regression model for panel data sets

We construct a new structural break test in a panel regression model using the self-normalization method. The self-normalization test is shown to be superior to an existing test in that the former is theoretically and experimentally valid for regression models with serially and/or cross-sectionally correlated errors while the latter is not. We derive the asymptotic null distribution of the self-normalization test and its consistency under an alternative hypothesis. Unlike the existing test requiring bootstrap computation for critical values, the self-normalization test is implemented easily with a set of simple critical values. A Monte Carlo experiment reports that the self-normalization resolves the severe over-size problem of the existing test under serial and/or cross-sectional error correlation.