The power performance of fixed-T panel unit root tests allowing for structural breaks in their deterministic components
نویسندگان
چکیده
The asymptotic local power of least squares based xed-T panel unit root tests allowing for a structural break in their individual e¤ects and/or incidental trends of the AR(1) panel data model is studied. These tests correct the least squares estimator of the autoregressive coe¢ cient of this panel data model for its inconsistency due to the individual e¤ects and/or incidental trends of the panel. The limiting distributions of the tests are analytically derived under a sequence of local alternatives, assuming that the cross-sectional dimension of the tests (N) grows large. It is shown that the considered xed-T tests have local power which tends to unity fast only if the panel data model includes individual e¤ects. For panel data models with incidental trends, the power of the tests becomes trivial. However, this problem does not always appear if the tests allow for serial correlation of the error term. JEL classi cation: C22, C23
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