Inference for Unit Roots in a Panel Smooth Transition Autoregressive Model where the Time Dimension is Fixed
In this paper we derive a unit root test against a Panel Logistic Smooth Transition Autoregressive (PLSTAR). The analysis is concentrated on the case where the time dimension is fixed and the cross section dimension tends to infinity. Under the null hypothesis of a unit root, we show that the LSDV estimator of the autoregressive parameter in the linear component of the model is inconsistent due to the inclusion of fixed effects. The test statistic, adjusted for the inconsistency, has an asymptotic normal distribution whose first two moments are calculated analytically. To complete the analysis, finite sample properties of the test are examined. We highlight scenarios under which the traditional panel unit root tests by Harris and Tzavalis have inferior or reasonable power compared to our test.
|Date of creation:||23 Jan 2005|
|Date of revision:||18 Feb 2005|
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Cahiers de recherche
8633, Universite de Montreal, Departement de sciences economiques.
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