A Locally Optimal Test for No Unit Root in Cross-sectionally Dependent Panel Data
AbstractThis paper develops a simple test for the null hypothesis of no unit root for panel data with cross-sectional dependence in the form of a common factor in the disturbance. We do not estimate the common factor but mop-up its effect by employing the same method as the one proposed in Pesaran (2007) in the unit root testing context. We show that our test is asymptotically locally optimal, although the optimality is not guaranteed under a wide range of the alternative.
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Bibliographic InfoArticle provided by Hitotsubashi University in its journal Hitotsubashi Journal of Economics.
Volume (Year): 52 (2011)
Issue (Month): 2 (December)
KPSS test; unit root; cross-sectional dependence; LM test; locally best test;
Find related papers by JEL classification:
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
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- Yoosoon Chang, 2000.
"Bootstrap Unit Root Tests in Panels with Cross-Sectional Dependency,"
Econometric Society World Congress 2000 Contributed Papers
1585, Econometric Society.
- Chang, Yoosoon, 2004. "Bootstrap unit root tests in panels with cross-sectional dependency," Journal of Econometrics, Elsevier, vol. 120(2), pages 263-293, June.
- Chang, Yoosoon, 2002. "Bootstrap Unit Root Tests in Panels with Cross-Sectional Dependency," Working Papers 2000-01, Rice University, Department of Economics.
- Yoosoon Chang, 2000. "Bootstrap Unit Root Tests in Panels with Cross-Sectional Dependency," Cowles Foundation Discussion Papers 1251, Cowles Foundation for Research in Economics, Yale University.
- Badi H. Baltagi & Chihwa Kao, 2000. "Nonstationary Panels, Cointegration in Panels and Dynamic Panels: A Survey," Center for Policy Research Working Papers 16, Center for Policy Research, Maxwell School, Syracuse University.
- Harris, David & Leybourne, Stephen & McCabe, Brendan, 2005. "Panel Stationarity Tests for Purchasing Power Parity With Cross-Sectional Dependence," Journal of Business & Economic Statistics, American Statistical Association, vol. 23, pages 395-409, October.
- 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.
- Moon, H.R.Hyungsik Roger & Perron, Benoit, 2004. "Testing for a unit root in panels with dynamic factors," Journal of Econometrics, Elsevier, vol. 122(1), pages 81-126, September.
- M. Hashem Pesaran & L. Vanessa Smith & Takashi Yamagata, 2008.
"Panel Unit Root Tests in the Presence of a Multifactor Error Structure,"
CESifo Working Paper Series
2193, CESifo Group Munich.
- Pesaran, M. Hashem & Vanessa Smith, L. & Yamagata, Takashi, 2013. "Panel unit root tests in the presence of a multifactor error structure," Journal of Econometrics, Elsevier, vol. 175(2), pages 94-115.
- Pesaran, M. Hashem & Smith, L. Vanessa & Yamagata, Takashi, 2007. "Panel Unit Root Tests in the Presence of a Multifactor Error Structure," IZA Discussion Papers 3254, Institute for the Study of Labor (IZA).
- M. Hashem Pesaran & L. Vanessa Smith & Takashi Yamagata, 2008. "Panel Unit Root Tests in the Presence of a Multifactor Error Structure," Discussion Papers 08/03, Department of Economics, University of York.
- Pesaran, M.H. & Smit, L.V. & Yamagata, T., 2007. "Panel Unit Root Tests in the Presence of a Multifactor Error Structure," Cambridge Working Papers in Economics 0775, Faculty of Economics, University of Cambridge.
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