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On the asymptotic t-test for large nonstationary panel models

  • Trapani, Lorenzo
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    The asymptotic t-test for the long-run average in a heterogeneous nonstationary panel model is derived. The asymptotics of the Least Squares Dummy Variable (LSDV) and of the Pooled-OLS (POLS) estimators for the slope parameter are studied under various circumstances (serial correlation, strong cross-sectional dependence in the errors and in the regressors and mixed stationary/nonstationary errors) and a modified estimator of the asymptotic variance is derived. The asymptotic variance is computed up to a simple transformation of the residual and no nuisance parameters need to be estimated. The resulting t-statistics are shown to have a standard normal limiting distribution. Asymptotic tests based on the standardized version of the t-statistic are shown to have good power properties, and the correct size, even for n as small as 25.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0167947311000831
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    Article provided by Elsevier in its journal Computational Statistics & Data Analysis.

    Volume (Year): 56 (2012)
    Issue (Month): 11 ()
    Pages: 3286-3306

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    Handle: RePEc:eee:csdana:v:56:y:2012:i:11:p:3286-3306
    Contact details of provider: Web page: http://www.elsevier.com/locate/csda

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