Unit Root Inference in Generally Trending and Cross-Correlated Fixed-T Panels. Issue 3 (3rd July 2018)

• Record Type: Journal Article
• Authors: Robertson, Donald; Sarafidis, Vasilis; Westerlund, Joakim
• Is Part Of: Journal of business & economic statistics. Volume 36:Issue 3(2018)
• Page Start: 493
• Page End: 504
• Publication Date: 2018-07-03
• Subjects: Common factors -- GMM -- Panel data -- Unit root test -- Unobserved heterogeneity; Economics -- Statistical methods -- Periodicals; Commercial statistics -- Periodicals; Économie politique -- Méthodes statistiques -- Périodiques; Statistique commerciale -- Périodiques; 330.015195
• DOI: 10.1080/07350015.2016.1191501
• Languages: English
• ISSNs: 0735-0015

Abstract

Abstract : 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, N -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.