Publication: Persistence Heterogeneity Testing in Panels with Interactive Fixed Effects
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2019-07-01
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Wiley
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Abstract
We consider large N, T panel data models with fixed e↵ects, a common factor allowing
for cross-section dependence, and persistent data and shocks, which are assumed
fractionally integrated. In a basic setup, the main interest is on the fractional parameter
of the idiosyncratic component, which is estimated in first di↵erences after factor
removal by projection on the cross-section average. The pooled conditional-sum-ofsquares
estimate is pNT consistent but the normal asymptotic distribution might not
be centered, requiring the time series dimension to grow faster than the cross-section
size for correction. We develop tests of homogeneity of dynamics, including the degree
of integration, which have no trivial power under local departures from the null hypothesis
of a non-negligible fraction of cross-section units. A simulation study shows
that our estimates and tests have good performance even in moderately small panels.
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Factor models, Fractional integration, Homogeneity test, Long nemory, Panel data
Bibliographic citation
Ergemen, Y. E., & Velasco, C. (2018). Persistence Heterogeneity Testing in Panels with Interactive Fixed Effects. En Journal of Time Series Analysis, 40 (4), pp. 573-589.