 A Cusum Test of Common Trends in Large Heterogeneous PanelsJavier Hidalgo and Jungyoon Lee STICERD - Econometrics Paper Series from Suntory and Toyota International Centres for Economics and Related Disciplines, LSE Abstract: This paper examines a nonparametric CUSUM-type test for common trends in large panel data sets with individual fixed effects. We consider, as in Zhang, Su and Phillips (2012), a partial linear regression model with unknown functional form for the trend component, although our test does not involve local smoothings. This conveniently forgoes the need to choose a bandwidth parameter, which due to a lack of a clear and sensible information criteria it is difficult for testing purposes. We are able to do so after making use that the number of individuals increases with no limit. After removing the parametric component of the model, when the errors are homoscedastic, our test statistic converges to a Gaussian process whose critical values are easily tabulated. We also examine the consequences of having heteroscedasticity as well as discussing the problem of how to compute valid critical values due to the very complicated covariance structure of the limiting process. Finally, we present a small Monte-Carlo experiment to shed some light on the finite sample performance of the test. Keywords: Common Trends; large data set; Partial linear models; Bootstrap algorithms (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:cep:stiecm:576 Access Statistics for this paper More papers in STICERD - Econometrics Paper Series from Suntory and Toyota International Centres for Economics and Related Disciplines, LSE |
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