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On the asymptotic t-test for large nonstationary panel models

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  • Trapani, Lorenzo

Abstract

The asymptotic t-test for the long-run average in a heterogeneous nonstationary panel model is derived. The asymptotics of the Least Squares Dummy Variable (LSDV) and of the Pooled-OLS (POLS) estimators for the slope parameter are studied under various circumstances (serial correlation, strong cross-sectional dependence in the errors and in the regressors and mixed stationary/nonstationary errors) and a modified estimator of the asymptotic variance is derived. The asymptotic variance is computed up to a simple transformation of the residual and no nuisance parameters need to be estimated. The resulting t-statistics are shown to have a standard normal limiting distribution. Asymptotic tests based on the standardized version of the t-statistic are shown to have good power properties, and the correct size, even for n as small as 25.

Suggested Citation

  • Trapani, Lorenzo, 2012. "On the asymptotic t-test for large nonstationary panel models," Computational Statistics & Data Analysis, Elsevier, vol. 56(11), pages 3286-3306.
    • Handle: RePEc:eee:csdana:v:56:y:2012:i:11:p:3286-3306
    DOI: 10.1016/j.csda.2011.03.004
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    References listed on IDEAS

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    Cited by:

    1. Trapani, Lorenzo, 2021. "Inferential theory for heterogeneity and cointegration in large panels," Journal of Econometrics, Elsevier, vol. 220(2), pages 474-503.
    2. Jeong, Minsoo, 2018. "Consistent estimator of nonparametric structural spurious regression model for high frequency data," Economics Letters, Elsevier, vol. 162(C), pages 18-21.

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