Local Asymptotic Power Of The Im-Pesaran-Shin Panel Unit Root Test And The Impact Of Initial Observations
AbstractIn this note we derive the local asymptotic power function of the standardized averaged Dickey-Fuller panel unit root statistic of Im, Pesaran and Shin (2003, Journal of Econometrics, 115, 53-74), allowing for heterogeneous deterministic intercept terms. We consider the situation where the deviation of the initial observation from the underlying intercept term in each individual time series may not be asymptotically negligible. We find that power decreases monotonically as the absolute values of the initial conditions increase in magnitude, in direct contrast to the univariate case. Finite sample simulations confirm the relevance of this result for practical applications, demonstrating that the power of the test can be very low for values of T and N typically encountered in practice.
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Bibliographic InfoArticle provided by Cambridge University Press in its journal Econometric Theory.
Volume (Year): 26 (2010)
Issue (Month): 01 (February)
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Other versions of this item:
- David Harris & David I. Harvey & Stephen J. Leybourne & Nikoloas D. Sakkas, 2008. "Local asymptotic power of the Im-Pesaran-Shin panel unit root test and the impact of initial observations," Discussion Papers 08/02, University of Nottingham, Granger Centre for Time Series Econometrics.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Elsevier, vol. 115(1), pages 53-74, July.
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- Evans, G B A & Savin, N E, 1981. "Testing for Unit Roots: 1," Econometrica, Econometric Society, vol. 49(3), pages 753-79, May.
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- Becheri, I.G. & Drost, F.C. & Akker, R. van den, 2013. "Asymptotically UMP Panel Unit Root Tests," Discussion Paper 2013-017, Tilburg University, Center for Economic Research.
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