() and Rickard Sandberg
Changli He: Dept. of Economic Statistics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden
Rickard Sandberg: Dept. of Economic Statistics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden
Abstract: In this paper we derive a unit root test against a Panel Logistic Smooth Transition Autoregressive (PLSTAR). The analysis is concentrated on the case where the time dimension is fixed and the cross section dimension tends to infinity. Under the null hypothesis of a unit root, we show that the LSDV estimator of the autoregressive parameter in the linear component of the model is inconsistent due to the inclusion of fixed effects. The test statistic, adjusted for the inconsistency, has an asymptotic normal distribution whose first two moments are calculated analytically. To complete the analysis, finite sample properties of the test are examined. We highlight scenarios under which the traditional panel unit root tests by Harris and Tzavalis have inferior or reasonable power compared to our test.
37 pages, First version: January 23, 2005. Revised: February 18, 2005.
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