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I have a simple linear regression model and am trying to locate structural breaks in the relationship between the two variables. The data are cross-sectional, not time-series.

I've been using Wald tests on pairs of dummies (1 if X is above some threshold, zero otherwise) & interaction terms (of the dummy and X) and found quite a few "candidate" points. But after reading up on the topic, it seems this method is frowned upon. That is, testing multiple points in hopes of finding something rather than testing a "known" point.

The estat sbsingle command in Stata shows some promise, but requires a gapless time series. Is it advisable/reasonable/defensible to assign ranks to the observations based on each's X value, and then treat the rank as a time-series variable in order to meet the estat command's requirements?

--Edit in response to GeoMatt22--

scatterplot

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  • $\begingroup$ Can you post an example scatterplot of your data? $\endgroup$ – GeoMatt22 Aug 31 '16 at 0:29
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    $\begingroup$ You might find this post relevant. $\endgroup$ – Dimitriy V. Masterov Aug 31 '16 at 0:47
  • $\begingroup$ Does a Chow test not work here? $\endgroup$ – VCG Aug 31 '16 at 13:29
  • $\begingroup$ My understanding is that a Chow test, which is essentially what I was doing with the shotgun-approach Wald tests, is best used when there is a "known" break to be tested as opposed to when one is looking somewhat blindly for which points may qualify as breaks. $\endgroup$ – Andy_3000 Aug 31 '16 at 13:50
  • $\begingroup$ Try a Log-Log transform, the correlation will improve. $\endgroup$ – Carl Apr 16 '17 at 10:44
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yes, it must be time series. Once I raised a question in a workshop. If we have IRS, CRS and DRS between labor any output , then we can detect structural break in this cross sectional data. An econometrician there said, it is time series not cross sectional as both labor and output are time-series.

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    $\begingroup$ Given that "time series" and "structural break" have a variety of definitions and interpretations, to avoid misconceptions and error it is important to state what you understand these terms to mean, because this answer does not appear to be correct for many reasonable interpretations. $\endgroup$ – whuber Jan 16 '19 at 14:03

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