Non stationary panel models allowing for unobservable common trends have recently become very popular. However, standard methods based on factor extraction or models augmented with cross-section averages require large sample sizes, rarely available in practice. In these cases we propose the simple and robust alternative of augmenting the panel regression with common time dummies. The underlying assumption of additive effects can be tested by means of a panel cointegration test, with no need of estimating a general interactive effects model. An application to labour productivity in the four major European economies (France, Germany, Italy and UK) illustrates the method.
Dealing with unobservable common trends in small samples: a panel cointegration approach / DI IORIO, Francesca; Fachin, S.. - (2015).
Dealing with unobservable common trends in small samples: a panel cointegration approach
DI IORIO, FRANCESCA;
2015
Abstract
Non stationary panel models allowing for unobservable common trends have recently become very popular. However, standard methods based on factor extraction or models augmented with cross-section averages require large sample sizes, rarely available in practice. In these cases we propose the simple and robust alternative of augmenting the panel regression with common time dummies. The underlying assumption of additive effects can be tested by means of a panel cointegration test, with no need of estimating a general interactive effects model. An application to labour productivity in the four major European economies (France, Germany, Italy and UK) illustrates the method.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
