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Likelihood Ratio Tests for a Unit Root in Panels with Random Effects
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Statistics.
Uppsala University, Disciplinary Domain of Science and Technology, Mathematics and Computer Science, Department of Mathematics, Applied Mathematics and Statistics.ORCID iD: 0000-0003-0336-2974
(English)In: Statistics, ISSN 0233-1888Article in journal (Refereed) Accepted
Abstract [en]

Because of the fixed heterogeneity of their models, most panel unit root tests impose restrictions on the rate at which the number of time periods, T, and the number of  rosssection units, N, go to infinity. A common example of such a restriction is N/T → 0, which in practice means that T >> N, a condition that is not always met. In the current paper the heterogeneity is given a parsimonious random effects specification, which is used as a basis for developing a new likelihood ratio test for a unit root. The asymptotic analysis shows that the new test is valid for all (N, T) expansion paths satisfying N/T5 0, which represents a substantial improvement when compared to the existing fixed effects literature.

Place, publisher, year, edition, pages
Taylor & Francis.
National Category
Probability Theory and Statistics
Research subject
URN: urn:nbn:se:uu:diva-303683OAI: oai:DiVA.org:uu-303683DiVA: diva2:972673
Available from: 2016-09-22 Created: 2016-09-22 Last updated: 2016-09-22

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Lyhagen, JohanLarsson, RolfWesterlund, Joakim
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