On the asymptotic t-test for large nonstationary panel models

Lorenzo Trapani ()

Computational Statistics & Data Analysis, 2012, vol. 56, issue 11, 3286-3306

Abstract: The asymptotic t-test for the long-run average in a heterogeneous nonstationary panel model is derived. The asymptotics of the Least Squares Dummy Variable (LSDV) and of the Pooled-OLS (POLS) estimators for the slope parameter are studied under various circumstances (serial correlation, strong cross-sectional dependence in the errors and in the regressors and mixed stationary/nonstationary errors) and a modified estimator of the asymptotic variance is derived. The asymptotic variance is computed up to a simple transformation of the residual and no nuisance parameters need to be estimated. The resulting t-statistics are shown to have a standard normal limiting distribution. Asymptotic tests based on the standardized version of the t-statistic are shown to have good power properties, and the correct size, even for n as small as 25.

Keywords: Panel data; t-test; Asymptotics; Monte Carlo; Common factors (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:csdana:v:56:y:2012:i:11:p:3286-3306

DOI: 10.1016/j.csda.2011.03.004

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