A Likelihood Ratio Test for Idiosyncratic Unit Roots in the Exact Factor Model with Integrated Factors
2016 (English)In: Communications in statistics. Simulation and computation, ISSN 0361-0918, E-ISSN 1532-4141, Vol. 45, no 6, 2032-2050 p.Article in journal, Meeting abstract (Refereed) Published
We consider an exact factor model with unobservable common stochastic trends imposed by non-stationary factors, and study, by simulation, the power of the likelihood ratio test for unit roots in the idiosyncratic components. The power of the test is compared with the analogous Lagrange multiplier test and the Fisher-type test proposed by Bai and Ng (A PANIC attack on unit roots and cointegration, Econometrica, 72, 1127–1177, 2004). The results suggest that the benefit of the likelihood ratio test is in panels with a small cross-section.
Place, publisher, year, edition, pages
2016. Vol. 45, no 6, 2032-2050 p.
Panel unit root, Dynamic factors, Maximum Likelihood, Likelihood ratio
Probability Theory and Statistics
Research subject Statistics
IdentifiersURN: urn:nbn:se:uu:diva-236358DOI: 10.1080/03610918.2014.889155ISI: 000377774300014OAI: oai:DiVA.org:uu-236358DiVA: diva2:764171
6th Nordic Econometric Meeting, Sondeborg, Denmark, May 27-29, 2011
ProjectsSolving Macroeconomic Problems Using Non-Stationary Panel Data
FunderThe Jan Wallander and Tom Hedelius Foundation, P2005-0117:1 P2009-0189:1