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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- Chang, Yoosoon, 2002.
"Bootstrap Unit Root Tests in Panels with Cross-Sectional Dependency,"
2000-01, Rice University, Department of Economics.
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Cahiers de recherche
2002-18, Universite de Montreal, Departement de sciences economiques.
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- 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.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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- 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.
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