LM-type Tests For Idiosyncratic and Common Unit Roots in the Exact Factor Model with AR(1) Dynamics
(English)Manuscript (preprint) (Other academic)
Recent developments within the panel unit-root literature have illustrated how the exact factor model serves as a parsimonious framework and allows for consistent maximum likelihood inference even when it is misspecified contra the more general approximate factor model. In this paper we consider an exact factor model with AR(1) dynamics and propose LM-type tests for idiosyncratic and common unit roots. We derive the asymptotic distributions and carry out simulations to investigate size and power of the tests in finite samples, as well as compare the performance with some existing tests.
Panel unit root, Dynamic factors, Maximum likelihood, Lagrange multiplier
Research subject Statistics
IdentifiersURN: urn:nbn:se:uu:diva-207294OAI: oai:DiVA.org:uu-207294DiVA: diva2:647581
ProjectsSolving Macroeconomic Problems Using Non-Stationary Panel Data