Local power of fixed-T panel unit root tests with serially correlated errors and incidental trends

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Local power of fixed-T panel unit root tests with serially correlated errors and incidental trends. / Karavias, Yiannis; Tzavalis, Elias.

In: Journal of Time Series Analysis, Vol. 37, No. 2, 01.03.2016, p. 222-239.

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@article{1091ead545664e278c780d0b9a1e4191,
title = "Local power of fixed-T panel unit root tests with serially correlated errors and incidental trends",
abstract = "The asymptotic local power properties of various fixed T panel unit root tests with serially correlated errors and incidental trends are studied. Asymptotic (over N) local power functions are analytically derived, and through them, the effects of general forms of serial correlation are examined. We find that a test based on an instrumental variables (IV) estimator dominates the tests based on the within-groups (WG) estimator. These functions also show that in the presence of incidental trends, an instrumental variables test based on the first differences of the model has non-trivial local power in an N^(−1/2) neighbourhood of unity. Furthermore, for a test based on the within-groups estimator, although it is found that it has trivial power in the presence of incidental trends, this ceases to be the case if there is serial correlation as well.",
author = "Yiannis Karavias and Elias Tzavalis",
year = "2016",
month = mar,
day = "1",
doi = "10.1111/jtsa.12144",
language = "English",
volume = "37",
pages = "222--239",
journal = "Journal of Time Series Analysis",
issn = "0143-9782",
publisher = "Wiley",
number = "2",

}

RIS

TY - JOUR

T1 - Local power of fixed-T panel unit root tests with serially correlated errors and incidental trends

AU - Karavias, Yiannis

AU - Tzavalis, Elias

PY - 2016/3/1

Y1 - 2016/3/1

N2 - The asymptotic local power properties of various fixed T panel unit root tests with serially correlated errors and incidental trends are studied. Asymptotic (over N) local power functions are analytically derived, and through them, the effects of general forms of serial correlation are examined. We find that a test based on an instrumental variables (IV) estimator dominates the tests based on the within-groups (WG) estimator. These functions also show that in the presence of incidental trends, an instrumental variables test based on the first differences of the model has non-trivial local power in an N^(−1/2) neighbourhood of unity. Furthermore, for a test based on the within-groups estimator, although it is found that it has trivial power in the presence of incidental trends, this ceases to be the case if there is serial correlation as well.

AB - The asymptotic local power properties of various fixed T panel unit root tests with serially correlated errors and incidental trends are studied. Asymptotic (over N) local power functions are analytically derived, and through them, the effects of general forms of serial correlation are examined. We find that a test based on an instrumental variables (IV) estimator dominates the tests based on the within-groups (WG) estimator. These functions also show that in the presence of incidental trends, an instrumental variables test based on the first differences of the model has non-trivial local power in an N^(−1/2) neighbourhood of unity. Furthermore, for a test based on the within-groups estimator, although it is found that it has trivial power in the presence of incidental trends, this ceases to be the case if there is serial correlation as well.

U2 - 10.1111/jtsa.12144

DO - 10.1111/jtsa.12144

M3 - Article

VL - 37

SP - 222

EP - 239

JO - Journal of Time Series Analysis

JF - Journal of Time Series Analysis

SN - 0143-9782

IS - 2

ER -