Repository logo
 

Unit Root Inference in Generally Trending and Cross-Correlated Fixed-T Panels

Accepted version
Peer-reviewed

Loading...
Thumbnail Image

Type

Article

Change log

Authors

Sarafidis, V 
Westerlund, J 

Abstract

This paper 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 multi-factor 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.

Description

Keywords

panel data, unit root test, unobserved heterogeneity, common factors, GMM

Journal Title

Journal of Business and Economic Statistics

Conference Name

Journal ISSN

0735-0015
1537-2707

Volume Title

Publisher

Informa UK Limited
Sponsorship
Knut and Alice Wallenberg Foundation (Wallenberg Academy Fellowship)