LM-type tests for idiosyncratic and common unit roots in the exact factor model with AR(1) dynamics

M. Solberger, X. Zhou

    Research output: Working paper / PreprintWorking paper

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    Abstract

    Recent developments within the panel unit-root literature have illustrated how the exact factor model serves as a parsimonious framework and allows for consistent maximum likelihood inference even when it is misspecified contra the more general approximate factor model. In this paper we consider an exact factor model with AR(1) dynamics and propose LM-type tests for idiosyncratic and common unit roots. We derive the asymptotic distributions and carry out simulations to investigate size and power of the tests in finite samples, as well as compare the performance with some existing tests.
    Original languageEnglish
    Place of PublicationMaastricht
    PublisherMaastricht University, Graduate School of Business and Economics
    DOIs
    Publication statusPublished - 1 Jan 2013

    Publication series

    SeriesGSBE Research Memoranda
    Number059

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