Most econometric schemes to allow for heterogeneity in micro behavior have two drawbacks: they do not fit the data and they rule out interesting economic models. In this paper we consider the time homogeneous first order Markov (HFOM) model that allows for maximal heterogeneity. That is, the...

This paper extends the cross-sectionally augmented panel unit root test (CIPS) proposed by Pesaran (2007) to the case of a multifactor error structure, and proposes a new panel unit root test based on a simple average of cross-sectionally augmented Sargan–Bhargava statistics (CSB). The basic...