Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
IDEAS home Printed from https://ideas.repec.org/p/cep/stiecm/576.html
   My bibliography  Save this paper

A Cusum Test of Common Trends in Large Heterogeneous Panels

Author

Listed:
  • Javier Hidalgo
  • Jungyoon Lee

Abstract

This paper examines a nonparametric CUSUM-type test for common trends in large panel data sets with individual fixed effects. We consider, as in Zhang, Su and Phillips (2012), a partial linear regression model with unknown functional form for the trend component, although our test does not involve local smoothings. This conveniently forgoes the need to choose a bandwidth parameter, which due to a lack of a clear and sensible information criteria it is difficult for testing purposes. We are able to do so after making use that the number of individuals increases with no limit. After removing the parametric component of the model, when the errors are homoscedastic, our test statistic converges to a Gaussian process whose critical values are easily tabulated. We also examine the consequences of having heteroscedasticity as well as discussing the problem of how to compute valid critical values due to the very complicated covariance structure of the limiting process. Finally, we present a small Monte-Carlo experiment to shed some light on the finite sample performance of the test.

Suggested Citation

  • Javier Hidalgo & Jungyoon Lee, 2014. "A Cusum Test of Common Trends in Large Heterogeneous Panels," STICERD - Econometrics Paper Series 576, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    • Handle: RePEc:cep:stiecm:576
    as

    Download full text from publisher

    File URL: https://sticerd.lse.ac.uk/dps/em/em576.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Peter C. B. Phillips & Donggyu Sul, 2007. "Transition Modeling and Econometric Convergence Tests," Econometrica, Econometric Society, vol. 75(6), pages 1771-1855, November.
    2. Chang, Chung & Todd Ogden, R., 2009. "Bootstrapping sums of independent but not identically distributed continuous processes with applications to functional data," Journal of Multivariate Analysis, Elsevier, vol. 100(6), pages 1291-1303, July.
    3. Phillips, Peter C. B., 2001. "Trending time series and macroeconomic activity: Some present and future challenges," Journal of Econometrics, Elsevier, vol. 100(1), pages 21-27, January.
    4. Peter C. B. Phillips & Hyungsik R. Moon, 1999. "Linear Regression Limit Theory for Nonstationary Panel Data," Econometrica, Econometric Society, vol. 67(5), pages 1057-1112, September.
    5. Patrick Sevestre & Laszlo Matyas, 2008. "The Econometrics of Panel Data," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00279977, HAL.
    6. Hashem Pesaran, M. & Yamagata, Takashi, 2008. "Testing slope homogeneity in large panels," Journal of Econometrics, Elsevier, vol. 142(1), pages 50-93, January.
    7. Javier Hidalgo & Pedro Souza & Pedro Souza, 2013. "Testing for equality of an increasing number of spectral density functions," STICERD - Econometrics Paper Series 563, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    8. Atak, Alev & Linton, Oliver & Xiao, Zhijie, 2011. "A semiparametric panel model for unbalanced data with application to climate change in the United Kingdom," Journal of Econometrics, Elsevier, vol. 164(1), pages 92-115, September.
    9. Pesaran, M. Hashem & Tosetti, Elisa, 2011. "Large panels with common factors and spatial correlation," Journal of Econometrics, Elsevier, vol. 161(2), pages 182-202, April.
    10. White Halbert & Granger Clive W.J., 2011. "Consideration of Trends in Time Series," Journal of Time Series Econometrics, De Gruyter, vol. 3(1), pages 1-40, February.
    11. Jiti Gao & Kim Hawthorne, 2006. "Semiparametric estimation and testing of the trend of temperature series," Econometrics Journal, Royal Economic Society, vol. 9(2), pages 332-355, July.
    12. repec:cep:stiecm:/2013/563 is not listed on IDEAS
    13. Holger Dette & Efstathios Paparoditis, 2009. "Bootstrapping frequency domain tests in multivariate time series with an application to comparing spectral densities," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 71(4), pages 831-857, September.
    14. L. Bryan, Mark & P. Jenkins, Stephen, 2013. "Regression analysis of country effects using multilevel data: a cautionary tale," ISER Working Paper Series 2013-14, Institute for Social and Economic Research.
    15. repec:hal:journl:peer-00844810 is not listed on IDEAS
    16. repec:hal:journl:peer-00796743 is not listed on IDEAS
    17. Yonghui Zhang & Liangjun Su & Peter C. B. Phillips, 2012. "Testing for common trends in semi‐parametric panel data models with fixed effects," Econometrics Journal, Royal Economic Society, vol. 15(1), pages 56-100, February.
    18. László Mátyás & Patrick Sevestre (ed.), 2008. "The Econometrics of Panel Data," Advanced Studies in Theoretical and Applied Econometrics, Springer, number 978-3-540-75892-1, February.
    19. Baltagi, Badi H. & Hidalgo, Javier & Li, Qi, 1996. "A nonparametric test for poolability using panel data," Journal of Econometrics, Elsevier, vol. 75(2), pages 345-367, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Khismatullina, Marina & Vogt, Michael, 2023. "Nonparametric comparison of epidemic time trends: The case of COVID-19," Journal of Econometrics, Elsevier, vol. 232(1), pages 87-108.
    2. Marina Khismatullina & Michael Vogt, 2022. "Multiscale Comparison of Nonparametric Trend Curves," Papers 2209.10841, arXiv.org.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:cep:stiecm:/2014/576 is not listed on IDEAS
    2. Yonghui Zhang & Liangjun Su & Peter C. B. Phillips, 2012. "Testing for common trends in semi‐parametric panel data models with fixed effects," Econometrics Journal, Royal Economic Society, vol. 15(1), pages 56-100, February.
    3. Chen, Bin & Huang, Liquan, 2018. "Nonparametric testing for smooth structural changes in panel data models," Journal of Econometrics, Elsevier, vol. 202(2), pages 245-267.
    4. Michele Aquaro & Natalia Bailey & M. Hashem Pesaran, 2021. "Estimation and inference for spatial models with heterogeneous coefficients: An application to US house prices," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 36(1), pages 18-44, January.
    5. Jia Chen & Degui Li & Jiti Gao, 2013. "Non- and Semi-Parametric Panel Data Models: A Selective Review," Monash Econometrics and Business Statistics Working Papers 18/13, Monash University, Department of Econometrics and Business Statistics.
    6. Ricardo Bebczuk & Tamara Burdisso & Máximo Sangiácomo, 2012. "Credit vs. Payment Services: Financial Development and Economic Activity Revisited," BCRA Working Paper Series 201256, Central Bank of Argentina, Economic Research Department.
    7. Chen, Jia & Gao, Jiti & Li, Degui, 2012. "Semiparametric trending panel data models with cross-sectional dependence," Journal of Econometrics, Elsevier, vol. 171(1), pages 71-85.
    8. Kajal Lahiri & Huaming Peng & Xuguang Simon Sheng, 2022. "Measuring Uncertainty of a Combined Forecast and Some Tests for Forecaster Heterogeneity," Advances in Econometrics, in: Essays in Honor of M. Hashem Pesaran: Prediction and Macro Modeling, volume 43, pages 29-50, Emerald Group Publishing Limited.
    9. Hidalgo, Javier & Schafgans, Marcia, 2017. "Inference and testing breaks in large dynamic panels with strong cross sectional dependence," Journal of Econometrics, Elsevier, vol. 196(2), pages 259-274.
    10. Javier Hidalgo & Marcia M Schafgans, 2015. "Inference and Testing Breaks in Large Dynamic Panels with Strong Cross Sectional Dependence," STICERD - Econometrics Paper Series /2015/583, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    11. Su, Liangjun & Ju, Gaosheng, 2018. "Identifying latent grouped patterns in panel data models with interactive fixed effects," Journal of Econometrics, Elsevier, vol. 206(2), pages 554-573.
    12. Vasudeva N. R. Murthy & Natalya Ketenci, 2020. "Capital mobility in Latin American and Caribbean countries: new evidence from dynamic common correlated effects panel data modeling," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 6(1), pages 1-17, December.
    13. Arturas Juodis, 2013. "Cointegration Testing in Panel VAR Models Under Partial Identification and Spatial Dependence," UvA-Econometrics Working Papers 13-08, Universiteit van Amsterdam, Dept. of Econometrics.
    14. repec:rri:wpaper:201303 is not listed on IDEAS
    15. Cem Ertur & Antonio Musolesi, 2017. "Weak and Strong Cross‐Sectional Dependence: A Panel Data Analysis of International Technology Diffusion," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 32(3), pages 477-503, April.
    16. Karaman Örsal, Deniz Dilan & Droge, Bernd, 2014. "Panel cointegration testing in the presence of a time trend," Computational Statistics & Data Analysis, Elsevier, vol. 76(C), pages 377-390.
    17. Baylis, Kathy & Paulson, Nicholas D. & Piras, Gianfranco, 2011. "Spatial Approaches to Panel Data in Agricultural Economics: A Climate Change Application," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 43(3), pages 325-338, August.
    18. Badi H. Baltagi & Chihwa Kao & Long Liu, 2014. "Test of Hypotheses in a Time Trend Panel Data Model with Serially Correlated Error Component Disturbances," Advances in Econometrics, in: Essays in Honor of Peter C. B. Phillips, volume 33, pages 347-394, Emerald Group Publishing Limited.
    19. Yao Rao & Kaddour Hadri & Ruijun Bu, 2010. "Testing For Stationarity In Heterogeneous Panel Data In The Case Of Model Misspecification," Bulletin of Economic Research, Wiley Blackwell, vol. 62(3), pages 209-225, July.
    20. Omri, Anis, 2018. "Entrepreneurship, sectoral outputs and environmental improvement: International evidence," Technological Forecasting and Social Change, Elsevier, vol. 128(C), pages 46-55.
    21. Baltagi, Badi H. & Feng, Qu & Kao, Chihwa, 2016. "Estimation of heterogeneous panels with structural breaks," Journal of Econometrics, Elsevier, vol. 191(1), pages 176-195.
    22. Baltagi, Badi H. & Li, Jing, 2015. "Cointegration of matched home purchases and rental price indexes — Evidence from Singapore," Regional Science and Urban Economics, Elsevier, vol. 55(C), pages 80-88.

    More about this item

    Keywords

    Common Trends; large data set; Partial linear models; Bootstrap algorithms;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cep:stiecm:576. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://sticerd.lse.ac.uk/_new/publications/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.