GMM Unit Root Inference in Generally Trending and Cross-Correlated Dynamic Panels
Vasilis Sarafidis () and
Joakim Westerlund ()
MPRA Paper from University Library of Munich, Germany
This paper proposes a new panel unit root test based on the generalized method of moments approach for panels with a small number of time periods and a large number of cross-section units, N. In the model that we consider the deterministic trend function is essentially unrestricted and the errors are cross-sectionally correlated in a very general fashion. In spite of these allowances, the GMM-statistic is shown to be asymptotically unbiased, square root N-consistent and asymptotically normal for all values of the autoregressive (AR) coefficient, ρ, including unity, making it an ideal candidate for unit root inference. Results from both simulated and real data are provided to suggest that the asymptotic properties are borne out well in small samples.
Keywords: Panel data; unit root test; cross-section dependence; common factors; GMM. (search for similar items in EconPapers)
JEL-codes: C12 C13 C33 C36 (search for similar items in EconPapers)
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