Social and Behavioral Sciences Commons^™

Test Of Hypotheses In Panel Data Models When The Regressor And Disturbances Are Possibly Nonstationary, Badi H. Baltagi, Chihwa Kao, Sanggon Na

Center for Policy Research

This paper considers the problem of hypotheses testing in a simple panel data regression model with random individual effects and serially correlated disturbances. Following Baltagi, Kao and Liu (2008), we allow for the possibility of non-stationarity in the regressor and/or the disturbance term. While Baltagi et al. (2008) focus on the asymptotic properties and distributions of the standard panel data estimators, this paper focuses on test of hypotheses in this setting. One important finding is that unlike the time series case, one does not necessarily need to rely on the “super-efficient” type AR estimator by Perron and Yabu (2009) to …