 Local power of panel unit root tests allowing for structural breaksYiannis Karavias and Elias Tzavalis Econometric Reviews, 2017, vol. 36, issue 10, 1123-1156 Abstract: The asymptotic local power of least squares–based fixed-T panel unit root tests allowing for a structural break in their individual effects and/or incidental trends of the AR(1) panel data model is studied. Limiting distributions of these tests are derived under a sequence of local alternatives, and analytic expressions show how their means and variances are functions of the break date and the time dimension of the panel. The considered tests have nontrivial local power in a N−1/2 neighborhood of unity when the panel data model includes individual intercepts. For panel data models with incidental trends, the power of the tests becomes trivial in this neighborhood. However, this problem does not always appear if the tests allow for serial correlation in the error term and completely vanishes in the presence of cross-section correlation. These results show that fixed-T tests have very different theoretical properties than their large-T counterparts. Monte Carlo experiments demonstrate the usefulness of the asymptotic theory in small samples. Date: 2017 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:emetrv:v:36:y:2017:i:10:p:1123-1156 Ordering information: This journal article can be ordered from DOI: 10.1080/07474938.2015.1059722 Access Statistics for this article Econometric Reviews is currently edited by Dr. Essie Maasoumi More articles in Econometric Reviews from Taylor & Francis Journals |
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