An LM type test for idiosyncratic unit roots in a dynamic-factor model with integrated factors
2012 (English)Report (Other academic)
We consider an exact factor model with integrated factors and proposean LM-type test for unit roots in the idiosyncratic component. We show that, when the number of time points (T) tends to infinity the limiting distribution of the LM-statistic is a weighted sum of independent X 2/1 variables, and when T tends to infinity followed by the number of panel individuals (N) tending to infinity, the limiting distribution is standard normal. In a simulation study, the proposed test shows better local power than the pooled Fisher-type test of Bai and Ng (2004) when the factors are integrated.
Place, publisher, year, edition, pages
2012. , 27 p.
Working paper / Department of Statistics, Uppsala University, 2012:1
Panel unit root, Dynamic factors, Lagrange multiplier
IdentifiersURN: urn:nbn:se:uu:diva-176959OAI: oai:DiVA.org:uu-176959DiVA: diva2:538105