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On the Local Power of Fixed T Panel Unit Root Tests with Serially Correlated Errors

Author

Listed:
  • Karavias, Yiannis
  • Tzavalis, Elias
Abstract
Analytical asymptotic local power functions are employed to study the effects of general form short term serial correlation on �fixed-T panel data unit root tests. Two models are considered, one that has only individual intercepts and one that has both individual intercepts and individual trends. It is shown that tests based on IV estimators are more powerful in all cases examined. Even more, for the model with individual trends an IV based test is shown to have non-trivial local power at the natural root-N rate.

Suggested Citation

  • Karavias, Yiannis & Tzavalis, Elias, 2012. "On the Local Power of Fixed T Panel Unit Root Tests with Serially Correlated Errors," MPRA Paper 43131, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:43131
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    File URL: https://mpra.ub.uni-muenchen.de/43131/1/MPRA_paper_43131.pdf
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    References listed on IDEAS

    as
    1. Moon, H.R.Hyungsik Roger & Perron, Benoit, 2004. "Testing for a unit root in panels with dynamic factors," Journal of Econometrics, Elsevier, vol. 122(1), pages 81-126, September.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Panel data models; unit roots; local power functions; serial correlation; incidental trends;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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    This paper has been announced in the following NEP Reports:

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