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Unit roots: identification and testing in micro panels

  • Steve Bond


    (Institute for Fiscal Studies and Nuffield College, Oxford)

  • Céline Nauges

    (Institute for Fiscal Studies)

  • Frank Windmeijer


    (Institute for Fiscal Studies and University of Bristol)

We consider a number of unit root tests for micro panels where the number of individuals is typically large, but the number of time periods is often very small. As we discuss, the presence of a unit root is closely related to the identification of parameters of interest in this context. Calculations of asymptotic local power and Monte Carlo evidence indicate that two simple t-tests based on ordinary least squares estimators perform particularly well.

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Paper provided by Centre for Microdata Methods and Practice, Institute for Fiscal Studies in its series CeMMAP working papers with number CWP07/05.

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Length: 40 pp.
Date of creation: 06 Jul 2005
Date of revision:
Handle: RePEc:ifs:cemmap:07/05
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  1. Hugo Kruiniger, 2002. "On the Estimation of Panel Regression Models with Fixed Effects," Working Papers 450, Queen Mary University of London, School of Economics and Finance.
  2. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
  3. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
  4. Ahn, Seung C. & Schmidt, Peter, 1995. "Efficient estimation of models for dynamic panel data," Journal of Econometrics, Elsevier, vol. 68(1), pages 5-27, July.
  5. Hugo Kruiniger & Elias Tzavalis, 2002. "Testing for Unit Roots in Short Dynamic Panels with Serially Correlated and Heteroscedastic Disturbance Terms," Working Papers 459, Queen Mary University of London, School of Economics and Finance.
  6. Harris, Richard D. F. & Tzavalis, Elias, 1999. "Inference for unit roots in dynamic panels where the time dimension is fixed," Journal of Econometrics, Elsevier, vol. 91(2), pages 201-226, August.
  7. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
  8. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  9. Hsiao, Cheng & Hashem Pesaran, M. & Kamil Tahmiscioglu, A., 2002. "Maximum likelihood estimation of fixed effects dynamic panel data models covering short time periods," Journal of Econometrics, Elsevier, vol. 109(1), pages 107-150, July.
  10. Hugo Kruiniger, 2002. "Maximum Likelihood Estimation of Dynamic Linear Panel Data Models with Fixed Effects," Working Papers 458, Queen Mary University of London, School of Economics and Finance.
  11. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
  12. Tony Lancaster, 2002. "Orthogonal Parameters and Panel Data," Review of Economic Studies, Oxford University Press, vol. 69(3), pages 647-666.
  13. Ahn, Seung C. & Schmidt, Peter, 1997. "Efficient estimation of dynamic panel data models: Alternative assumptions and simplified estimation," Journal of Econometrics, Elsevier, vol. 76(1-2), pages 309-321.
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