Hello everyone, I have a question on structural break based on this. After having tested my time series data for structural break, I found that in my n=20 observations, nearly every year has a structural break. This weakens my next step of using a dummy to overcome the structural break problem, to 'absorb’ the structural break. Example:

I am interested in b1 in regression y=a +b1X1 +b2X2
  • I identify year=2 is a structural break. create dummy=1 if year=2
  • New model: y=a+b1x1 + b2(x1*dummy) + b2x2
  • Here, b1 is the estimate during ‘normal times’, and b2 is estimate during ‘break'
Given that I have a structural break in every year, the effect of including the dummy is weaker (I think). Wondering if there are any solutions to this?