Cross-sectional effects of common and heterogeneous regressors on asymptotic properties of panel unit root tests
Abstract: We compute limiting local powers of panel unit root tests for three kinds of error terms: (a) AR (b) MA (c) composite errors. Our main purpose is to examine cross-sectional effects of regressors on the asymptotic properties of tests. It is theoretically and graphically shown that the existence of common regressors does not affect the asymptotic properties of the tests, although that of heterogeneous regressors does affect. We also derive the limiting power envelopes of the most powerful invariant tests, which yields the conclusion that the GLSE-based tests are asymptotically efficient for the AR models , unlike the time series case. The same is true of the LBIU and LBI tests for the MA and error components models.
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