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Level shifts in a panel data based unit root test. An application to the rate of unemployment

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Author Info
Josep Lluis Carrion Silvestre
Tomas del Barrio Castro
Enrique Lopez Bazo (Universitat de Barcelona)

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Abstract

Several unit root tests in panel data have recently been proposed. The test developed by Harris and Tzavalis (1999 JoE) performs particularly well when the time dimension is moderate in relation to the cross-section dimension. However, in common with the traditional tests designed for the unidimensional case, it was found to perform poorly when there is a structural break in the time series under the alternative. Here we derive the asymptotic distribution of the test allowing for a shift in the mean, and assess the small sample performance. We apply this new test to show how the hypothesis of (perfect) hysteresis in Spanish unemployment is rejected in favour of the alternative of the natural unemployment rate, when the possibility of a change in the latter is considered.

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Paper provided by Universitat de Barcelona. Espai de Recerca en Economia in its series Working Papers in Economics with number 79.

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Length: 53 pages
Date of creation: 2002
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Handle: RePEc:bar:bedcje:200279

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Postal: Espai de Recerca en Economia, Facultat de Ciències Econòmiques. Tinent Coronel Valenzuela, Num 1-11 08034 Barcelona. Spain.
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Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing

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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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  16. Josep Lluís Carrion-i-Silvestre & Tomás del Barrio-Castro & Enrique López-Bazo, 2002. "Level shifts in a panel data based unit root test. An application to the rate of unemployment," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 C5-2, International Conferences on Panel Data. [Downloadable!]
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Cited by:
(explanations, 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.)

  1. Syed A. Basher & Josep Lluís Carrion-i-Silvestre, 2007. "Another Look at the Null of Stationary RealExchange Rates. Panel Data with Structural Breaks and Cross-section Dependence," IREA Working Papers 200710, University of Barcelona, Research Institute of Applied Economics, revised May 2007. [Downloadable!]
  2. Mariam Camarero & Josep Lluis Carrion Silvestre & Cecilio Tamarit, 2006. "New evidence of the real interest rate parity for OECD countries using panel unit root tests with breaks," Working Papers in Economics 159, Universitat de Barcelona. Espai de Recerca en Economia. [Downloadable!]
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  3. He, Changli & Sandberg, Rickard, 2005. "Inference for Unit Roots in a Panel Smooth Transition Autoregressive Model where the Time Dimension is Fixed," Working Paper Series in Economics and Finance 581, Stockholm School of Economics, revised 18 Feb 2005. [Downloadable!]
  4. Josep Lluis Carrion Silvestre & Tomas del Barrio Castro & Enrique Lopez Bazo, 2002. "Level shifts in a panel data based unit root test. An application to the rate of unemployment," Working Papers in Economics 79, Universitat de Barcelona. Espai de Recerca en Economia. [Downloadable!]
    Other versions:
  5. Pui Sun Tam & University of Macau, 2006. "Breaking trend panel unit root tests," Computing in Economics and Finance 2006 341, Society for Computational Economics. [Downloadable!]
  6. Josep Lluís Carrion-i-Silvestre & Vicente German-Soto, 2008. "Panel Data Stochastic Convergence Analysis of the Mexican Regions," IREA Working Papers 200805, University of Barcelona, Research Institute of Applied Economics, revised Apr 2008. [Downloadable!]
  7. Jushan Bai; Josep Lluís Carrion-i-Silvestre, 2004. "Structural changes, common stochastic trends and unit roots in panel data," Econometric Society 2004 North American Summer Meetings 345, Econometric Society. [Downloadable!]
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  8. Josep Lluis Carrion Silvestre & Tomas del Barrio Castro & Enrique Lopez Bazo, 2003. "Breaking the panels. An application to the GDP per capita," Working Papers in Economics 97, Universitat de Barcelona. Espai de Recerca en Economia. [Downloadable!]
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