Persistence Heterogeneity Testing in Panels with Interactive Fixed Effects Articles uri icon

publication date

  • July 2019

start page

  • 573

end page

  • 589


  • 4


  • 40

International Standard Serial Number (ISSN)

  • 0143-9782

Electronic International Standard Serial Number (EISSN)

  • 1467-9892


  • We consider large N ,T panel data models with fixed effects, a common factor allowing for cross‐section dependence, and persistent data and shocks, which are assumed fractionally integrated. In a basic setup, the main interest is on the fractional parameter of the idiosyncratic component, which is estimated in first differences after factor removal by projection on the cross‐section average. The pooled conditional‐sum‐of‐squares estimate is urn:x-wiley:jtsa:media:jtsa12436:jtsa12436-math-0001 consistent but the normal asymptotic distribution might not be centred, requiring the time series dimension to grow faster than the cross‐section size for correction. We develop tests of homogeneity of dynamics, including the degree of integration, that have no trivial power under local departures from the null hypothesis of a non‐negligible fraction of cross‐section units. A simulation study shows that our estimates and tests have good performance even in moderately small panels


  • Economics


  • factor models; fractional integration; homogeneity test; long memory; panel data