Testing for Breaks in Cointegrated Panels

We investigate the issue of testing for structural breaks in large cointegrated panels with common and idiosyncratic regressors. We prove a panel Functional Central Limit Theorem. We show that the estimated coefficients of the common regressors have a mixed normal distribution, whilst the estimated coefficients of the idiosyncratic regressors have a normal distribution. We consider strong dependence across the idiosyncratic regressors by allowing for the presence of (stationary and nonstationary) common factors. We show that tests based on transformations of Wald-type statistics have power versus alternatives of order