{"status":"ok","message-type":"work","message-version":"1.0.0","message":{"indexed":{"date-parts":[[2025,5,13]],"date-time":"2025-05-13T21:57:45Z","timestamp":1747173465915,"version":"3.40.5"},"reference-count":36,"publisher":"Cambridge University Press (CUP)","issue":"5","license":[{"start":{"date-parts":[[2024,4,29]],"date-time":"2024-04-29T00:00:00Z","timestamp":1714348800000},"content-version":"unspecified","delay-in-days":0,"URL":"https:\/\/creativecommons.org\/licenses\/by\/4.0\/"}],"content-domain":{"domain":[],"crossmark-restriction":false},"short-container-title":["Econom. Theory"],"published-print":{"date-parts":[[2024,10]]},"abstract":"<jats:p>This paper considers testing for unit roots in Gaussian panels with cross-sectional dependence generated by common factors. Within our setup, we can analyze restricted versions of the two prevalent approaches in the literature, that of Moon and Perron (2004, <jats:italic>Journal of Econometrics<\/jats:italic> 122, 81\u2013126), who specify a factor model for the innovations, and the PANIC setup proposed in Bai and Ng (2004, <jats:italic>Econometrica<\/jats:italic> 72, 1127\u20131177), who test common factors and idiosyncratic deviations separately for unit roots. We show that both frameworks lead to locally asymptotically normal experiments with the <jats:italic>same<\/jats:italic> central sequence and Fisher information. Using Le Cam\u2019s theory of statistical experiments, we obtain the local asymptotic power envelope for unit-root tests. We show that the popular Moon and Perron (2004, <jats:italic>Journal of Econometrics<\/jats:italic> 122, 81\u2013126) and Bai and Ng (2010, <jats:italic>Econometric Theory<\/jats:italic> 26, 1088\u20131114) tests only attain the power envelope in case there is no heterogeneity in the long-run variance of the idiosyncratic components. We develop a new test which is asymptotically uniformly most powerful irrespective of possible heterogeneity in the long-run variance of the idiosyncratic components. Monte Carlo simulations corroborate our asymptotic results and document significant gains in finite-sample power if the variances of the idiosyncratic shocks differ substantially among the cross-sectional units.<\/jats:p>","DOI":"10.1017\/s0266466624000112","type":"journal-article","created":{"date-parts":[[2024,4,29]],"date-time":"2024-04-29T10:00:25Z","timestamp":1714384825000},"page":"1184-1209","source":"Crossref","is-referenced-by-count":0,"title":["ASYMPTOTICALLY UNIFORMLY MOST POWERFUL TESTS FOR UNIT ROOTS IN GAUSSIAN PANELS WITH CROSS-SECTIONAL DEPENDENCE GENERATED BY COMMON FACTORS"],"prefix":"10.1017","volume":"40","author":[{"ORCID":"https:\/\/orcid.org\/0000-0002-6860-5124","authenticated-orcid":false,"given":"Oliver","family":"Wichert","sequence":"first","affiliation":[],"role":[{"role":"author","vocabulary":"crossref"}]},{"ORCID":"https:\/\/orcid.org\/0009-0009-0663-1915","authenticated-orcid":false,"given":"I. 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