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- Westerlund, Joakim, et al.
(författare)
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New tools for understanding the local asymptotic power of panel unit root tests
- 2015
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Ingår i: Journal of Econometrics. - : Elsevier BV. - 0304-4076 .- 1872-6895. ; 188:1, s. 59-93
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Tidskriftsartikel (refereegranskat)abstract
- Motivated by the previously documented discrepancy between actual and predicted power, the present paper provides new tools for analyzing the local asymptotic power of panel unit root tests. These tools are appropriate in general when considering panel data with a dominant autoregressive root of the form rho(i)= 1 + ciN(-k)T(-tau), where i = 1,..., N indexes the cross-sectional units, T is the number of time periods and ci is a random local-to-unity parameter. A limit theory for the sample moments of such panel data is developed and is shown to involve infinite-order series expansions in the moments of ch in which existing theories can be seen as mere first-order approximations. The new theory is applied to study the asymptotic local power functions of some known test statistics for a unit root. These functions can be expressed in terms of the expansions in the moments of ci, and include existing local power functions as special cases. Monte Carlo evidence is provided to suggest that the new results go a long way toward bridging the gap between actual and predicted power.
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- Blomquist, Johan, et al.
(författare)
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Panel bootstrap tests of slope homogeneity
- 2016
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Ingår i: Empirical Economics. - : Springer Science and Business Media LLC. - 0377-7332 .- 1435-8921. ; 50:4, s. 1359-1381
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Tidskriftsartikel (refereegranskat)abstract
- This paper proposes two bootstrap-based tests that can be used to infer whether the individual slopes in a panel regression model are homogenous. The first test is suitable when wanting to infer the null of homogeneity versus the general alternative, while the second is suitable when wanting to infer the units of the panel that can be pooled. Both approaches are shown to be asymptotically valid, a property that is verified in small samples using Monte Carlo simulation.
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- De Vos, Ignace, et al.
(författare)
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On CCE estimation of factor-augmented models when regressors are not linear in the factors
- 2019
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Ingår i: Economics Letters. - : Elsevier BV. - 0165-1765. ; 178, s. 5-7
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Tidskriftsartikel (refereegranskat)abstract
- In empirical research it is often of interest to include non-linear functions of the explanatory variables, such as squares or interactions, in the specification. A popular technique to estimate such models in the presence of common factors is the Common Correlated Effects (CCE) methodology. However, this approach assumes that the regressors are linear in the factors, which is not the case if variables enter non-linearly. In this note we show how CCE should be implemented when some regressors violate the linear factor model assumption.
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- Westerlund, Joakim
(författare)
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An IV Test for a Unit Root in Generally Trending and Correlated Panels
- 2016
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Ingår i: Oxford Bulletin of Economics and Statistics. - : Wiley. - 0305-9049. ; 78:5, s. 752-764
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Tidskriftsartikel (refereegranskat)abstract
- This paper proposes an IV-based panel unit root test that is general enough to accommodate general error serial and cross-section dependence, and a potentially nonlinear deterministic trend function. These allowances make the new test one of the most general around. It is also very simple to implement. Indeed, the IV statistic is asymptotically invariant to not only to all nuisance parameters characterizing the dependence of the errors and the true trend function, but also the deterministic specification of the fitted test regression.
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- Westerlund, Joakim, et al.
(författare)
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Breaks in persistence in fixed-T panel data
- 2021
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Ingår i: Economics Letters. - : Elsevier BV. - 0165-1765. ; 205
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Tidskriftsartikel (refereegranskat)abstract
- This paper considers an autoregressive panel data model in which the autoregressive coefficient has undergone a structural break. The object of interest is the unknown breakpoint. A least squares-based estimator is proposed that is shown to be consistent when only the number of cross-section units, N, is large and the number of time periods, T, is small, thereby enabling quick detection of the onset of a new regime.
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- Westerlund, Joakim, et al.
(författare)
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CCE in fixed-T panels
- 2019
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Ingår i: Journal of Applied Econometrics. - : Wiley. - 0883-7252 .- 1099-1255. ; 34:5, s. 746-761
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Tidskriftsartikel (refereegranskat)abstract
- The presence of unobserved heterogeneity and its likely detrimental effect on inference has recently motivated the use of factor-augmented panel regression models. The workhorse of this literature is based on first estimating the unknown factors using the cross-section averages of the observables, and then applying ordinary least squares conditional on the first-step factor estimates. This is the common correlated effects (CCE) approach, the existing asymptotic theory for which is based on the requirement that both the number of time series observations, T, and the number of cross-section units, N, tend to infinity. The obvious implication of this theory for empirical work is that both N and T should be large, which means that CCE is impossible for the typical micro panel where only N is large. In the current paper, we put the existing CCE theory and its implications to a test. This is done by developing a new theory that enables T to be fixed. The results show that many of the previously derived large-T results hold even if T is fixed. In particular, the pooled CCE estimator is still consistent and asymptotically normal, which means that CCE is more applicable than previously thought. In fact, not only do we allow T to be fixed, but the conditions placed on the time series properties of the factors and idiosyncratic errors are also much more general than those considered previously.
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- Westerlund, Joakim, et al.
(författare)
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Interactive Effects Panel Data Models with General Factors and Regressors
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Ingår i: Econometric Theory. - 1469-4360.
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Tidskriftsartikel (refereegranskat)abstract
- This paper considers a model with general regressors and unobservable common factors. An estimator based on iterated principal component analysis is proposed, which is shown to be not only asymptotically normal, but under certain conditions also free of the otherwise so common asymptotic incidental parameters bias. Interestingly, the conditions required to achieve unbiasedness become weaker the stronger the trends in the factors, and if the trending is strong enough, unbiasedness comes at no cost at all. The approach does not require any knowledge of how many factors there are, or whether they are deterministic or stochastic. The order of integration of the factors is also treated as unknown, as is the order of integration of the regressors, which means that there is no need to pre-test for unit roots, or to decide on which deterministic terms to include in the model.
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| 10. |
- Westerlund, Joakim, et al.
(författare)
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On the determination of the number of factors using information criteria with data-driven penalty
- 2017
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Ingår i: Statistical Papers. - : Springer Science and Business Media LLC. - 0932-5026 .- 1613-9798. ; 58:1, s. 161-184
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Tidskriftsartikel (refereegranskat)abstract
- As is well known, when using an information criterion to select the number of common factors in factor models the appropriate penalty is generally indetermine in the sense that it can be scaled by an arbitrary constant, c say, without affecting consistency. In an influential paper, Hallin and Liška (J Am Stat Assoc102:603–617, 2007) proposes a data-driven procedure for selecting the appropriate value of c. However, by removing one source of indeterminacy, the new procedure simultaneously creates several new ones, which make for rather complicated implementation, a problem that has been largely overlooked in the literature. By providing an extensive analysis using both simulated and real data, the current paper fills this gap.
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