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GMM Unit Root Inference in Generally Trending and Cross-Correlated Dynamic Panels

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  • Robertson, Donald
  • Sarafidis, Vasilis
  • Westerlund, Joakim

Abstract

This paper proposes a new panel unit root test based on the generalized method of moments approach for panels with a small number of time periods and a large number of cross-section units, N. In the model that we consider the deterministic trend function is essentially unrestricted and the errors are cross-sectionally correlated in a very general fashion. In spite of these allowances, the GMM-statistic is shown to be asymptotically unbiased, square root N-consistent and asymptotically normal for all values of the autoregressive (AR) coefficient, ρ, including unity, making it an ideal candidate for unit root inference. Results from both simulated and real data are provided to suggest that the asymptotic properties are borne out well in small samples.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 53419.

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Date of creation: 05 Feb 2014
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Handle: RePEc:pra:mprapa:53419

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Keywords: Panel data; unit root test; cross-section dependence; common factors; GMM.;

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Cited by:
  1. Juodis, Arturas & Sarafidis, Vasilis, 2014. "Fixed T Dynamic Panel Data Estimators with Multi-Factor Errors," MPRA Paper 57659, University Library of Munich, Germany.

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