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Asymptotic local power of pooled t-ratio tests for unit roots in panels with fixed effects

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  • Hyungsik Roger Moon
  • Benoit Perron

Abstract

. This latter test is equivalent to the well-known pooled t test proposed by Levin et al. (2002, Journal of Econometrics 108, 1--24), and its power depends only on the mean of the local-to-unity parameters. This implies that it has the same power against homogeneous and heterogeneous alternatives with the same mean autoregressive parameter. We then compare these tests to a panel version of the Sargan-Bhargava (1983, Econometrica 51, 153--74) statistic for a unit root and the common point-optimal test of Moon et al. (2007, Journal of Econometrics 141, 416--51). Monte Carlo simulations confirm the usefulness of our local-to-unity framework. Copyright Royal Economic Society 2008

Suggested Citation

  • Hyungsik Roger Moon & Benoit Perron, 2008. "Asymptotic local power of pooled t-ratio tests for unit roots in panels with fixed effects," Econometrics Journal, Royal Economic Society, vol. 11(1), pages 80-104, March.
    • Handle: RePEc:ect:emjrnl:v:11:y:2008:i:1:p:80-104
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    Cited by:

    1. Karavias, Yiannis & Tzavalis, Elias, 2012. "On the Local Power of Fixed T Panel Unit Root Tests with Serially Correlated Errors," MPRA Paper 43131, University Library of Munich, Germany.
    2. Georges Bresson & Badi H. Baltagi & Alain Pirotte, 2007. "Panel unit root tests and spatial dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 339-360.
    3. Becheri, I.G. & Drost, Feike C. & van den Akker, R., 2013. "Asymptotically UMP Panel Unit Root Tests," Discussion Paper 2013-017, Tilburg University, Center for Economic Research.
    4. Gutierrez, Luciano, 2009. "Sampling at different frequencies, and the power of panel unit root tests," Economics Letters, Elsevier, vol. 102(1), pages 59-61, January.
    5. Westerlund, Joakim & Larsson, Rolf, 2015. "New tools for understanding the local asymptotic power of panel unit root tests," Journal of Econometrics, Elsevier, vol. 188(1), pages 59-93.
    6. Han, Chirok & Phillips, Peter C. B., 2010. "Gmm Estimation For Dynamic Panels With Fixed Effects And Strong Instruments At Unity," Econometric Theory, Cambridge University Press, vol. 26(1), pages 119-151, February.
    7. Becheri, I.G. & Drost, Feike C. & van den Akker, R., 2013. "Asymptotically UMP Panel Unit Root Tests," Other publications TiSEM e34b7d23-8e53-4cea-ba69-5, Tilburg University, School of Economics and Management.
    8. Kajal Lahiri & Zhongwen Liang & Huaming Peng, 2017. "The Local Power of the IPS Test with Both Initial Conditions and Incidental Trends," CESifo Working Paper Series 6313, CESifo.
    9. Karavias, Yiannis & Tzavalis, Elias, 2013. "The Power Performance of Fixed-T Panel Unit Root Tests allowing for Structural Breaks," MPRA Paper 46012, University Library of Munich, Germany.
    10. Joakim Westerlund, 2016. "Pooled Panel Unit Root Tests and the Effect of Past Initialization," Econometric Reviews, Taylor & Francis Journals, vol. 35(3), pages 396-427, March.
    11. Claude Lopez, 2009. "A Panel Unit Root Test with Good Power in Small Samples," Econometric Reviews, Taylor & Francis Journals, vol. 28(4), pages 295-313.
    12. Moon, Hyungsik Roger & Perron, Benoit & Phillips, Peter C.B., 2007. "Incidental trends and the power of panel unit root tests," Journal of Econometrics, Elsevier, vol. 141(2), pages 416-459, December.
    13. Yiannis Karavias & Elias Tzavalis, 2017. "Local power of panel unit root tests allowing for structural breaks," Econometric Reviews, Taylor & Francis Journals, vol. 36(10), pages 1123-1156, November.
    14. Karavias, Yiannis & Tzavalis, Elias, 2014. "Testing for unit roots in short panels allowing for a structural break," Computational Statistics & Data Analysis, Elsevier, vol. 76(C), pages 391-407.
    15. Yiannis Karavias & Elias Tzavalis, 2016. "Local Power of Fixed-T Panel Unit Root Tests With Serially Correlated Errors and Incidental Trends," Journal of Time Series Analysis, Wiley Blackwell, vol. 37(2), pages 222-239, March.
    16. Norkutė, Milda & Westerlund, Joakim, 2021. "The factor analytical approach in near unit root interactive effects panels," Journal of Econometrics, Elsevier, vol. 221(2), pages 569-590.
    17. Joakim Westerlund & Jörg Breitung, 2013. "Lessons from a Decade of IPS and LLC," Econometric Reviews, Taylor & Francis Journals, vol. 32(5-6), pages 547-591, August.
    18. Djaballah Mustapha, 2020. "The Relationship Between the Financial Innovation and the Money Supply: Empirical Study on the Maghreb Countries," Economics and Business, Sciendo, vol. 34(1), pages 168-178, February.
    19. Westerlund, Joakim, 2015. "The power of PANIC," Journal of Econometrics, Elsevier, vol. 185(2), pages 495-509.
    20. Skrobotov, Anton (Скроботов, Антон) & Turuntseva, Marina (Турунцева, Марина), 2017. "Testing the Hypothesis of a Unit Root for Independent Panels [Тестирование Гипотезы О Наличии Единичного Корня Для Независимых Панелей]," Working Papers 021707, Russian Presidential Academy of National Economy and Public Administration.
    21. Joakim Westerlund & Johan Blomquist, 2013. "A modified LLC panel unit root test of the PPP hypothesis," Empirical Economics, Springer, vol. 44(2), pages 833-860, April.
    22. Westerlund, Joakim & Larsson, Rolf, 2012. "Testing for a unit root in a random coefficient panel data model," Journal of Econometrics, Elsevier, vol. 167(1), pages 254-273.
    23. Westerlund, Joakim, 2015. "The effect of recursive detrending on panel unit root tests," Journal of Econometrics, Elsevier, vol. 185(2), pages 453-467.
    24. Zhongwen Liang, 2017. "A Unified Approach on the Local Power of Panel Unit Root Tests," Papers 1710.02944, arXiv.org.

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