Karavias, Yiannis and Tzavalis, Elias (2012): On the Local Power of Fixed T Panel Unit Root Tests with Serially Correlated Errors.
Download (322kB) | Preview
Analytical asymptotic local power functions are employed to study the effects of general form short term serial correlation on �fixed-T panel data unit root tests. Two models are considered, one that has only individual intercepts and one that has both individual intercepts and individual trends. It is shown that tests based on IV estimators are more powerful in all cases examined. Even more, for the model with individual trends an IV based test is shown to have non-trivial local power at the natural root-N rate.
|Item Type:||MPRA Paper|
|Original Title:||On the Local Power of Fixed T Panel Unit Root Tests with Serially Correlated Errors|
|Keywords:||Panel data models; unit roots; local power functions; serial correlation; incidental trends|
|Subjects:||C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C23 - Panel Data Models ; Spatio-temporal Models|
|Depositing User:||Yiannis Karavias|
|Date Deposited:||07. Dec 2012 16:25|
|Last Modified:||20. Feb 2013 02:35|
Bond, S., Nauges, C., and Windmeijer, F., 2002. Unit roots: Identi�cation and testing in micropanels. Cemmap Working Paper CWP07/05, The Institute for Fiscal Studies, UCL.
Breitung J., 2000. The local power of some unit root tests for panel data. In Badi H. Baltagi, Thomas B. Fomby, R. Carter Hill (ed.) Nonstationary Panels, Panel Cointegration, and Dynamic Panels (Advances in Econometrics, Volume 15), Emerald Group Publishing Limited, pp.161-177.
Breitung J., Meyer W., 1994. Testing for unit roots using panel data: are wages on different bargaining levels cointegrated? Applied Economics 26, 353-361.
De Blander, R., Dhaene, G., 2011. Unit Root Tests for Panel Data with AR(1) Errors and Small T. Econometrics Journal. 15(1), 101-124.
De Wachter, S., Harris, R.D.F., Tzavalis, E., 2007. Panel unit root tests: the role of time dimension and serial correlation. Journal of Statistical Inference and Planning, 137, 230-244.
Hahn, J., Kuersteiner, G., 2002. Asymptotically unbiased inference for a dynamic panel model with �fixed effects when both n and T are large. Econometrica. 70, 1639-1657.
Han C., & Phillips, Peter C. B., 2010. GMM Estimation For Dynamic Panels With Fixed Effects And Strong Instruments At Unity. Econometric Theory, Cambridge University Press, vol. 26(01), pages 119-151.
Harris, R.D.F., Tzavalis, E., 1999. Inference for unit roots in dynamic panels where the time dimension is fi�xed. Journal of Econometrics. 91, 201-226.
Harris, R.D.F., Tzavalis, E., 2004. Inference for unit roots for dynamic panels in the presence of deterministic trends: Do stock prices and dividends follow a random walk?. Econometric Reviews. 23, 149-166.
Hayakawa K., 2010. A unit root test for micro panels with serially correlated errors. Working Paper, Hiroshima University.
Kruiniger, H., 2008. Maximum likelihood estimation and inference methods for the covariance stationary panel AR(1)/unit root model. Journal of Econometrics, 144, 447� 464.
Kruiniger, H., and E., Tzavalis, 2002. Testing for unit roots in short dynamic panels with serially correlated and heteroscedastic disturbance terms. Working Papers 459, Department of Economics, Queen Mary, University of London, London.
Levin, A., Lin, F., and Chu, C., 2002. Unit root tests in panel data: asymptotic and fi�nite-sample properties. Journal of Econometrics 122, 81�126.
Madsen E. 2010. Unit root inference in panel data models where the time-series dimension is �fixed: a comparison of different tests. Econometrics Journal, 13, 63-94.
Moon, H.R. & B. Perron (2004) Asymptotic Local Power of Pooled t-Ratio Tests for Unit Roots in Panels with Fixed Effects. Mimeo, University of Southern California.
Moon, H. R. and B. Perron (2004). Testing for a unit root in panels with dynamic factors. Journal of Econometrics 122, 81�126.
Moon, H. R., B. Perron and P. C. B. Phillips (2006). A note on �The local power of some unit root tests for panel data�by Breitung. Econometric Theory 22, 1177�88.
Moon H.R., Perron B. & Phillips P.C.B., 2007. Incidental trends and the power of panel unit root tests. Journal of Econometrics, 141(2), 416-459.
Moon H.R., and Perron B., 2008. Asymptotic local power of pooled t-ratio tests for unit roots in panels with fi�xed effects. Econometrics Journal, 11, 80-104.
Moon H.R., and P. C. B. Phillips (1999). Maximum Likelihood Estimation in Panels with Incidental Trends. Oxford Bulletin of Economics and Statistics, Special Issue (1999), 0305-9049.
Sargan, J. D. and A. Bhargava (1983). Testing residuals from least squares regression for being generated by the Gaussian random walk. Econometrica 51, 153�74.
Schwert, G.W., 1989. Tests for unit roots: a Monte Carlo investigation. Journal of Business and Economic Statistics 7, 147�160.