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International Finance Discussion Papers
The International Finance Discussion Papers logo links to the International Finance Discussion Papers home page Estimation of Average Local-to-Unity Roots in Heterogenous Panels
Erik Hjalmarsson
2006-852  (December 2005)

Abstract:  This paper considers the estimation of average autoregressive roots-near-unity in panels where the time-series have heterogenous local-to-unity parameters. The pooled estimator is shown to have a potentially severe bias and a robust median based procedure is proposed instead. This median estimator has a small asymptotic bias that can be eliminated almost completely by a bias correction procedure. The asymptotic normality of the estimator is proved. The methods proposed in the paper provide a useful way of summarizing the persistence in a panel data set, as well as a complement to more traditional panel unit root tests.

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Local-to-unity, panel data, pooled regression, median estimation, bias correction

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Last update: March 20, 2006