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On The Estimation Of A Linear Time Trend Regression With A One-Way Error Component Model In The Presence Of Serially Correlated Errors, Chihwa Kao, Jamie Emerson
On The Estimation Of A Linear Time Trend Regression With A One-Way Error Component Model In The Presence Of Serially Correlated Errors, Chihwa Kao, Jamie Emerson
Center for Policy Research
In this paper we study the limiting distributions for ordinary least squares (OLS), fixed effects (FE), first difference (FD), and generalized least squares (GLS) estimators in a linear time trend regression with a one-way error component model in the presence of serially correlated errors. We show that when the error term is I(0), the FE is asymptotically equivalent to the GLS. However, when the error term is I(1) the GLS could be less efficient than the FD or FE estimators, and the FD is the most efficient estimator. However, when the intercept is included in the model and the error …