Test of Hypotheses in a Time Trend Panel Data Model with Serially Correlated Error Component Disturbances

Abstract

This paper studies test of hypotheses for the slope parameter in a linear time trend panel data model with serially correlated error component disturbances. We propose a test statistic that uses a bias corrected estimator of the serial correlation parameter. The proposed test statistic which is based on the corresponding fixed effects feasible generalized least squares (FE-FGLS) estimator of the slope parameter has the standard normal limiting distribution which is valid whether the remainder error is I(0) or I(1). This performs well in Monte Carlo experiments and is recommended.

Citation

Baltagi, B.H., Kao, C. and Liu, L. (2014), "Test of Hypotheses in a Time Trend Panel Data Model with Serially Correlated Error Component Disturbances", Essays in Honor of Peter C. B. Phillips (Advances in Econometrics, Vol. 33), Emerald Group Publishing Limited, Bingley, pp. 347-394. https://doi.org/10.1108/S0731-905320140000033011