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Unit root inference in generally trending and cross-correlated fixed-T panels

journal contribution
posted on 2018-01-01, 00:00 authored by D Robertson, V Sarafidis, Joakim WesterlundJoakim Westerlund
This article proposes a new panel unit root test based on the generalized method of moments approach for panels with a possibly small number of time periods, T, and a large number of cross-sectional units, N. In the model that we consider the deterministic trend function is essentially unrestricted and the errors obey a multifactor structure that allows for rich forms of unobserved heterogeneity. In spite of these allowances, the GMM estimator considered is shown to be asymptotically unbiased, (Formula presented.)-consistent, and asymptotically normal for all values of the autoregressive (AR) coefficient, ρ, including unity, making it a natural candidate for unit root inference. Results from our Monte Carlo study suggest that the asymptotic properties are borne out well in small samples. The implementation is illustrated by using a large sample of US banking institutions to test Gibrat’s Law.

History

Journal

Journal of business and economic statistics

Volume

36

Issue

3

Pagination

493 - 504

Publisher

Taylor & Francis

Location

Abingdon, Eng.

ISSN

0735-0015

eISSN

1537-2707

Language

eng

Publication classification

C1 Refereed article in a scholarly journal; C Journal article

Copyright notice

2018, American Statistical Association