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Likelihood ratio tests for a unit root in panels with random effects

Larsson, R, Lyhagen, J and Westerlund, Per 2016, Likelihood ratio tests for a unit root in panels with random effects, Statistics, vol. 51, no. 3, pp. 1-28, doi: 10.1080/02331888.2016.1266630.

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Title Likelihood ratio tests for a unit root in panels with random effects
Author(s) Larsson, R
Lyhagen, J
Westerlund, Per
Journal name Statistics
Volume number 51
Issue number 3
Start page 1
End page 28
Total pages 28
Publisher Taylor & Francis
Place of publication London, Eng.
Publication date 2016-12
ISSN 0233-1888
Keyword(s) unit root
panel data
random effects
Science & Technology
Physical Sciences
Statistics & Probability
Summary Because of the fixed heterogeneity of their models, most panel unit root tests impose restrictions on the rate at which the number of time periods, T, and the number of cross-section units, N, go to infinity. A common example of such a restriction is (Formula presented.), which in practice means that (Formula presented.), a condition that is not always met. In the current paper the heterogeneity is given a parsimonious random effects specification, which is used as a basis for developing a new likelihood ratio test for a unit root. The asymptotic analysis shows that the new test is valid for all (Formula presented.) expansion paths satisfying (Formula presented.), which represents a substantial improvement when compared to the existing fixed effects literature.
Language eng
DOI 10.1080/02331888.2016.1266630
Field of Research 140304 Panel Data Analysis
0104 Statistics
Socio Economic Objective 970114 Expanding Knowledge in Economics
HERDC Research category C1 Refereed article in a scholarly journal
ERA Research output type C Journal article
Copyright notice ©201, Informa
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Document type: Journal Article
Collection: Department of Economics
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