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An LM type test for idiosyncratic unit roots in a dynamic-factor model with integrated factors
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Statistics.
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Statistics.
2012 (English)Report (Other academic)
Abstract [en]

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.
Series
Working paper / Department of Statistics, Uppsala University, 2012:1
Keyword [en]
Panel unit root, Dynamic factors, Lagrange multiplier
National Category
Social Sciences
Identifiers
URN: urn:nbn:se:uu:diva-176959OAI: oai:DiVA.org:uu-176959DiVA: diva2:538105
Available from: 2012-06-29 Created: 2012-06-28 Last updated: 2012-06-29Bibliographically approved

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CiteExportLink to record
Permanent link

Direct link
Cite
Citation style
  • apa
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf