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Testing for a unit root in a random coefficient panel data model

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  • Westerlund, Joakim
  • Larsson, Rolf
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    Abstract

    This paper proposes new unit root tests in the context of a random autoregressive coefficient panel data model, in which the null of a unit root corresponds to the joint restriction that the autoregressive coefficient has unit mean and zero variance. The asymptotic distributions of the test statistics are derived and simulation results are provided to suggest that they perform very well in small samples.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0304407611002727
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Econometrics.

    Volume (Year): 167 (2012)
    Issue (Month): 1 ()
    Pages: 254-273

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    Handle: RePEc:eee:econom:v:167:y:2012:i:1:p:254-273

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    Web page: http://www.elsevier.com/locate/jeconom

    Related research

    Keywords: Panel unit root test; Random coefficient autoregressive model; Local asymptotic power;

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    References

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    1. Moon, Hyungsik & Phillips, Peter C.B., 1999. "Maximum Likelihood Estimation in Panels with Incidental Trends," University of California at Santa Barbara, Economics Working Paper Series qt3f55r5mj, Department of Economics, UC Santa Barbara.
    2. Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
    3. Pesaran, M.H., 2003. "A Simple Panel Unit Root Test in the Presence of Cross Section Dependence," Cambridge Working Papers in Economics 0346, Faculty of Economics, University of Cambridge.
    4. Ng, Serena, 2008. "A Simple Test for Nonstationarity in Mixed Panels," Journal of Business & Economic Statistics, American Statistical Association, vol. 26, pages 113-127, January.
    5. Schmidt, Peter & Phillips, C B Peter, 1992. "LM Tests for a Unit Root in the Presence of Deterministic Trends," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 257-87, August.
    6. Peter C.B. Phillips & Hyungsik R. Moon, 1999. "Linear Regression Limit Theory for Nonstationary Panel Data," Cowles Foundation Discussion Papers 1222, Cowles Foundation for Research in Economics, Yale University.
    7. 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, 03.
    8. Hyungsik Roger Moon & Benoit Perron & Peter C.B. Phillips, 2005. "Incidental Trends and the Power of Panel Unit Root Tests," IEPR Working Papers 05.38, Institute of Economic Policy Research (IEPR).
    9. McCabe,B.P.M. & Tremayne,A.R., 1995. "Testing a Time-Series for Difference Stationarity," Cambridge Working Papers in Economics 9420, Faculty of Economics, University of Cambridge.
    10. Distaso, Walter, 2008. "Testing for unit root processes in random coefficient autoregressive models," Journal of Econometrics, Elsevier, vol. 142(1), pages 581-609, January.
    11. Jushan Bai & Serena Ng, 2001. "A PANIC Attack on Unit Roots and Cointegration," Boston College Working Papers in Economics 519, Boston College Department of Economics.
    12. MOON, Hyungsik Roger & PERRON, Benoit., 2002. "Testing for a Unit Root in Panels with Dynamic Factors," Cahiers de recherche 2002-18, Universite de Montreal, Departement de sciences economiques.
    13. 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.
    14. Moon, H.R. & Perron, B. & Phillips, P.C.B., 2006. "On The Breitung Test For Panel Unit Roots And Local Asymptotic Power," Econometric Theory, Cambridge University Press, vol. 22(06), pages 1179-1190, December.
    15. Peter C. B. Phillips & Donggyu Sul, 2003. "Dynamic panel estimation and homogeneity testing under cross section dependence *," Econometrics Journal, Royal Economic Society, vol. 6(1), pages 217-259, 06.
    16. Shiqing Ling, 2004. "Estimation and testing stationarity for double-autoregressive models," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 66(1), pages 63-78.
    17. Bai, Jushan & Ng, Serena, 2010. "Panel Unit Root Tests With Cross-Section Dependence: A Further Investigation," Econometric Theory, Cambridge University Press, vol. 26(04), pages 1088-1114, August.
    18. Abadir, Karim M. & Distaso, Walter, 2007. "Testing joint hypotheses when one of the alternatives is one-sided," Journal of Econometrics, Elsevier, vol. 140(2), pages 695-718, October.
    19. repec:fth:calaec:6-99 is not listed on IDEAS
    20. Leybourne, S J & McCabe, B P M & Tremayne, A R, 1996. "Can Economic Time Series Be Differenced to Stationarity?," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(4), pages 435-46, October.
    21. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
    22. Pere, Pekka, 2003. "Ar(1) Models, Unit Roots, And Adjusted Profile Likelihood," Econometric Theory, Cambridge University Press, vol. 19(06), pages 885-922, December.
    23. Jushan Bai, 2003. "Inferential Theory for Factor Models of Large Dimensions," Econometrica, Econometric Society, vol. 71(1), pages 135-171, January.
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    Cited by:
    1. Lajos Horváth & Gregory Rice, 2014. "Extensions of some classical methods in change point analysis," TEST: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer, vol. 23(2), pages 219-255, June.

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