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Maximum Likelihood Estimation in Panels with Incidental Trends

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  • Moon, Hyungsik
  • Phillips, Peter C.B.

Abstract

It is shown that the maximum likelihood estimator of a local to unity parameter can be consistently estimated with panel data when the cross-section observations are independent. Consistency applies when there are no deterministic trends or when there is a homogeneous deterministic trend in the panel model. When there are heterogeneous deterministic trends the panel MLE of the local to unity parameter is inconsistent. This outcome provides a new instance of inconsistent ML estimation in dynamic panels, and, unlike earlier results of this type, applies when both T approaches infinity and N approaches infinity. Copyright 1999 by Blackwell Publishing Ltd

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Bibliographic Info

Paper provided by Department of Economics, UC Santa Barbara in its series University of California at Santa Barbara, Economics Working Paper Series with number qt3f55r5mj.

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Date of creation: 01 Jan 1999
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Handle: RePEc:cdl:ucsbec:qt3f55r5mj

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Keywords: Maximum Likelihood Estimation in Panels with Incidental Trends;

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References

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  1. James H. Stock, 1991. "Confidence Intervals for the Largest Autoresgressive Root in U.S. Macroeconomic Time Series," NBER Technical Working Papers, National Bureau of Economic Research, Inc 0105, National Bureau of Economic Research, Inc.
  2. Phillips, Peter C.B. & Moon, Hyungsik R., 1999. "How to Estimate Autoregressive Roots Near Unity," University of California at Santa Barbara, Economics Working Paper Series, Department of Economics, UC Santa Barbara qt87p2z8zx, Department of Economics, UC Santa Barbara.
  3. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, Econometric Society, vol. 64(4), pages 813-36, July.
  4. Jinyong Hahn & Guido Kuersteiner, 2002. "Asymptotically Unbiased Inference for a Dynamic Panel Model with Fixed Effects when Both "n" and "T" Are Large," Econometrica, Econometric Society, Econometric Society, vol. 70(4), pages 1639-1657, July.
  5. Peter C. B. Phillips & Hyungsik R. Moon, 1999. "Linear Regression Limit Theory for Nonstationary Panel Data," Econometrica, Econometric Society, Econometric Society, vol. 67(5), pages 1057-1112, September.
  6. Peter C.B. Phillips & Zhijie Xiao, 1998. "A Primer on Unit Root Testing," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1189, Cowles Foundation for Research in Economics, Yale University.
  7. Alvarez, J. & Arellano, M., 1998. "The Time Series and Cross-Section Asymptotics of Dynamic Panel Data Estimators," Papers, Centro de Estudios Monetarios Y Financieros- 9808, Centro de Estudios Monetarios Y Financieros-.
  8. Moon, Hyungsik R. & Phillips, Peter C.B., 1999. "Estimation of Autoregressive Roots near Unity using Panel Data," University of California at Santa Barbara, Economics Working Paper Series, Department of Economics, UC Santa Barbara qt7fd8x80m, Department of Economics, UC Santa Barbara.
  9. Cavanagh, Christopher L. & Elliott, Graham & Stock, James H., 1995. "Inference in Models with Nearly Integrated Regressors," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 11(05), pages 1131-1147, October.
  10. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, Econometric Society, vol. 59(6), pages 1551-80, November.
  11. Peter C.B. Phillips & Chin Chin Lee, 1996. "Efficiency Gains from Quasi-Differencing Under Nonstationarity," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1134, Cowles Foundation for Research in Economics, Yale University.
  12. repec:cup:etheor:v:11:y:1995:i:5:p:1131-47 is not listed on IDEAS
  13. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, Econometric Society, vol. 49(6), pages 1417-26, November.
  14. Xiao, Zhijie & Phillips, Peter C.B., 1999. "Efficient Detrending In Cointegrating Regression," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 15(04), pages 519-548, August.
  15. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, Econometric Society, vol. 50(4), pages 1029-54, July.
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Citations

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Cited by:
  1. Badi H. Baltagi & Chihwa Kao, 2000. "Nonstationary Panels, Cointegration in Panels and Dynamic Panels: A Survey," Center for Policy Research Working Papers, Center for Policy Research, Maxwell School, Syracuse University 16, Center for Policy Research, Maxwell School, Syracuse University.
  2. Westerlund, Joakim & Breitung, Jörg, 2009. "Myths and Facts about Panel Unit Root Tests," Working Papers in Economics, University of Gothenburg, Department of Economics 380, University of Gothenburg, Department of Economics.
  3. Hyungsik Roger MOON & Benoit PERRON, 2002. "Testing For A Unit Root In Panels With Dynamic Factors," Cahiers de recherche, Centre interuniversitaire de recherche en économie quantitative, CIREQ 18-2002, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  4. Topi, Jukka & Vilmunen, Jouko, 2001. "Transmission of monetary policy shocks in Finland: evidence from bank level data on loans," Working Paper Series, European Central Bank 0100, European Central Bank.
  5. Hyungsik Roger Moon & Peter C. B. Phillips, 2004. "GMM Estimation of Autoregressive Roots Near Unity with Panel Data," Econometrica, Econometric Society, Econometric Society, vol. 72(2), pages 467-522, 03.
  6. Peter C.B. Phillips & Donggyu Sul, 2003. "Bias in Dynamic Panel Estimation with Fixed Effects, Incidental Trends and Cross Section Dependence," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1438, Cowles Foundation for Research in Economics, Yale University, revised Jun 2004.
  7. Moon, H.R.Hyungsik Roger & Perron, Benoit, 2004. "Testing for a unit root in panels with dynamic factors," Journal of Econometrics, Elsevier, Elsevier, vol. 122(1), pages 81-126, September.
  8. Karavias, Yiannis & Tzavalis, Elias, 2012. "On the Local Power of Fixed T Panel Unit Root Tests with Serially Correlated Errors," MPRA Paper 43131, University Library of Munich, Germany.
  9. Westerlund, Joakim & Larsson, Rolf, 2009. "Testing for a Unit Root in a Random Coefficient Panel Data Model," Working Papers in Economics, University of Gothenburg, Department of Economics 383, University of Gothenburg, Department of Economics.
  10. Westerlund, Joakim & Norkute, Milda, 2014. "A Factor Analytical Method to Interactive Effects Dynamic Panel Models with or without Unit Root," Working Papers, Lund University, Department of Economics 2014:12, Lund University, Department of Economics.
  11. Hyungsik Roger Moon & Benoit Perron & Peter C.B. Phillips, 2003. "Incidental Trends and the Power of Panel Unit Root Tests," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1435, Cowles Foundation for Research in Economics, Yale University.
  12. Erik Hjalmarsson, 2005. "Estimation of average local-to-unity roots in heterogenous panels," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 852, Board of Governors of the Federal Reserve System (U.S.).
  13. Joakim Westerlund & J�rg Breitung, 2013. "Lessons from a Decade of IPS and LLC," Econometric Reviews, Taylor & Francis Journals, Taylor & Francis Journals, vol. 32(5-6), pages 547-591, August.
  14. Westerlund, Joakim & Larsson, Rolf, 2012. "Testing for a unit root in a random coefficient panel data model," Journal of Econometrics, Elsevier, Elsevier, vol. 167(1), pages 254-273.
  15. Win Chou & Dominica Lee, 2005. "Panel Cointegration Analysis of Audit Pricing Model," Review of Quantitative Finance and Accounting, Springer, Springer, vol. 24(4), pages 423-439, June.

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