Testing for unit roots on heterogeneous panels: A sequential approach
AbstractThe is a growing trend of criticism against the use of panel data unit root test for assessing hypotheses such as the purchasing power parity. The usual argument of a gain in power with respect to univariate unit root tests is not relevant as different nulls are involved when testing on panel data. In the context of a comparative, multi-country, study, inference based on individual unit root tests suffers mainly from a huge size distortion, even more than from low power. When the null hypothesis is -as usually in comparative research- a number of countries for which the variable of interest follows a unit root process, we propose to adopt a sequential strategy, as a way to combine a rigourous control over the size with the search for satisfactory power. We show how usual statistics have to be adapted, and we illustrate the implementation of this strategy both through simulation and through an empirical application to the PPP hypothesis within the OECD countries.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by CEPREMAP in its series CEPREMAP Working Papers (Couverture Orange) with number 0108.
Length: 30 pages
Date of creation: 2001
Date of revision:
Find related papers by JEL classification:
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- F31 - International Economics - - International Finance - - - Foreign Exchange
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-11-21 (All new papers)
- NEP-ECM-2001-11-21 (Econometrics)
- NEP-ETS-2001-11-21 (Econometric Time Series)
- NEP-IFN-2001-11-21 (International Finance)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Choi, Chi-Young, 2004. "Searching for evidence of long-run PPP from a post-Bretton Woods panel: separating the wheat from the chaff," Journal of International Money and Finance, Elsevier, Elsevier, vol. 23(7-8), pages 1159-1186.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sébastien Villemot).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.