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Likelihood Ratio Tests for a Unit Root in Panels with Random Effects
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
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Statistics.ORCID iD: 0000-0003-2930-8669
2016 (English)In: Statistics (Berlin), ISSN 0233-1888, E-ISSN 1029-4910Article in journal (Refereed) Published
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
2016.
Keyword [en]
unit root, panel data, random effects, C12, C13, C33
National Category
Probability Theory and Statistics
Research subject
Statistics
Identifiers
URN: urn:nbn:se:uu:diva-303683DOI: 10.1080/02331888.2016.1266630ISI: 000399481400009OAI: oai:DiVA.org:uu-303683DiVA: diva2:972673
Funder
Knut and Alice Wallenberg FoundationThe Jan Wallander and Tom Hedelius Foundation, P2014-0112:1
Available from: 2016-09-22 Created: 2016-09-22 Last updated: 2017-05-23Bibliographically approved

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Publisher's full texthttp://www.tandfonline.com/doi/full/10.1080/02331888.2016.1266630

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Larsson, RolfLyhagen, Johan

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