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

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

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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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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  9. Robertson, Donald & Sarafidis, Vasilis, 2015. "IV estimation of panels with factor residuals," Journal of Econometrics, Elsevier, vol. 185(2), pages 526-541.
  10. MOON, Hyungsik Roger & PERRON, Benoit., 2002. "Testing for a Unit Root in Panels with Dynamic Factors," Cahiers de recherche 2002-18, Universite de Montreal, Departement de sciences economiques.
  11. John Sutton, 1997. "Gibrat's Legacy," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 40-59, March.
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  22. Kruiniger, Hugo, 2009. "Gmm Estimation And Inference In Dynamic Panel Data Models With Persistent Data," Econometric Theory, Cambridge University Press, vol. 25(05), pages 1348-1391, October.
  23. Sarafidis, Vasilis & Wansbeek, Tom, 2010. "Cross-sectional Dependence in Panel Data Analysis," MPRA Paper 20367, University Library of Munich, Germany.
  24. 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.
  25. Edith Madsen, 2010. "Unit root inference in panel data models where the time-series dimension is fixed: a comparison of different tests," Econometrics Journal, Royal Economic Society, vol. 13(1), pages 63-94, 02.
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  27. Richard Harris & Elias Tzavalis, 2004. "Testing for Unit Roots in Dynamic Panels in the Presence of a Deterministic Trend: Re-examining the Unit Root Hypothesis for Real Stock Prices and Dividends," Econometric Reviews, Taylor & Francis Journals, vol. 23(2), pages 149-166.
  28. Jushan Bai, 2013. "Fixed‐Effects Dynamic Panel Models, a Factor Analytical Method," Econometrica, Econometric Society, vol. 81(1), pages 285-314, 01.
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