Asymptotic local power of pooled t-ratio tests for unit roots in panels with fixed effects  

Oleh:

Moon, Hyungsik Roger ; Perron, Benoit

Jenis: Article from Journal - ilmiah internasional
Dalam koleksi: The Econometrics Journal vol. 11 no. 1 (2008), page 80-104.
Topik: Panel Unit Root; Fixed Effects; Local Asymptotic Power; Pooled t-ratio Test
Fulltext: 80.pdf (196.21KB)

Ketersediaan

Perpustakaan Pusat (Semanggi) Nomor Panggil: EE39.4 Non-tandon: 1 (dapat dipinjam: 0) Tandon: tidak ada

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Isi artikel

We derive analytically the local asymptotic power of two pooled t-ratio tests for the presence of a unit root in a panel with fixed effects. We consider two statistics which differ according to the method used to remove the bias of the pooled OLS estimator. We show that when we bias-correct the numerator only, the resulting test has significant local power in n-1/4T-1 neighbourhoods of the null of a panel unit root, while when the entire estimator is corrected for bias, the resulting statistic has local asymptotic power in neighbourhoods shrinking at the faster rate of n-1/2T-1 . This latter test is equivalent to the well-known pooled t test proposed by Levin et al. (2002, Journal of Econometrics 108, 1–24), and its power depends only on the mean of the local-to-unity parameters. This implies that it has the same power against homogeneous and heterogeneous alternatives with the same mean autoregressive parameter. We then compare these tests to a panel version of the Sargan-Bhargava (1983, Econometrica 51, 153–74) statistic for a unit root and the common point-optimal test of Moon et al. (2007, Journal of Econometrics 141, 416–51). Monte Carlo simulations confirm the usefulness of our local-to-unity framework.

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