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

Listed author(s):
  • 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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File URL: https://mpra.ub.uni-muenchen.de/53419/1/MPRA_paper_53419.pdf
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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
Handle: RePEc:pra:mprapa:53419
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  1. Maurice J.G. Bun & Sarafidis, V., 2013. "Dynamic Panel Data Models," UvA-Econometrics Working Papers 13-01, Universiteit van Amsterdam, Dept. of Econometrics.
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  3. Hyungsik Roger MOON & Benoit PERRON, 2002. "Testing For A Unit Root In Panels With Dynamic Factors," Cahiers de recherche 18-2002, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  4. Rembert De Blander & Geert Dhaene, 2012. "Unit root tests for panel data with AR(1) errors and small T," Econometrics Journal, Royal Economic Society, vol. 15(1), pages 101-124, 02.
  5. Maurice Bun & Frank Windmeijer, 2007. "The weak instrument problem of the system GMM estimator in dynamic panel data models," CeMMAP working papers CWP08/07, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
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  7. Jaroslava Hlouskova & Martin Wagner, 2005. "The Performance of Panel Unit Root and Stationarity Tests: Results from a Large Scale Simulation Study," Diskussionsschriften dp0503, Universitaet Bern, Departement Volkswirtschaft.
  8. Robertson, Donald & Sarafidis, Vasilis & Symons, James, 2010. "IV Estimation of Panels with Factor Residuals," MPRA Paper 26166, University Library of Munich, Germany.
  9. Chirok Han & Peter C.B. Phillips, 2007. "GMM Estimation for Dynamic Panels with Fixed Effects and Strong Instruments at Unity," Cowles Foundation Discussion Papers 1599, Cowles Foundation for Research in Economics, Yale University.
  10. 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.
  11. 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.
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  17. Sarafidis, Vasilis & Wansbeek, Tom, 2010. "Cross-sectional Dependence in Panel Data Analysis," MPRA Paper 20367, University Library of Munich, Germany.
  18. Pesaran, M.H., 2003. "A Simple Panel Unit Root Test in the Presence of Cross Section Dependence," Cambridge Working Papers in Economics 0346, Faculty of Economics, University of Cambridge.
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  30. repec:cup:cbooks:9780521822893 is not listed on IDEAS
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