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Nonlinear IV Panel Unit Root Tests

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  • Chang, Yoosoon

    (Rice U)

Abstract

This paper presents the nonlinear IV methodology as an effective inferential basis for nonstationary panels. The nonlinear IV method resolves the inferential difficulties in testing for unit roots arising from the intrinsic heterogeneities and cross-dependencies of panel models. Individual units are allowed to be dependent through correlations among innovations, interrelatedness of short-run dynamics and/or cross-sectional cointegrations. If based on the instrumental variables that are nonlinear transformations of the lagged levels, the usual IV estimation of the augmented Dickey-Fuller type regressions yields asymptotically normal unit root tests for panels with general dependencies and heterogeneities. Moreover, the nonlinear IV estimation allows for the use of covariates to further increase power, and order statistics to test for more flexible forms of hypotheses, which are especially important in heterogeneous panels.

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Bibliographic Info

Paper provided by Rice University, Department of Economics in its series Working Papers with number 2003-06.

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Date of creation: Mar 2003
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Handle: RePEc:ecl:riceco:2003-06

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  1. Chang, Yoosoon, 2002. "Bootstrap Unit Root Tests in Panels with Cross-Sectional Dependency," Working Papers 2000-01, Rice University, Department of Economics.
  2. Joon Y. Park & Peter C.B. Phillips, 1998. "Nonlinear Regressions with Integrated Time Series," Cowles Foundation Discussion Papers 1190, Cowles Foundation for Research in Economics, Yale University.
  3. Park, Joon, 2003. "Strong Approximations for Nonlinear Transformations of Integrated Time Series," Working Papers 2003-18, Rice University, Department of Economics.
  4. Peter C.B. Phillips & Joon Y. Park, 1998. "Asymptotics for Nonlinear Transformations of Integrated Time Series," Cowles Foundation Discussion Papers 1182, Cowles Foundation for Research in Economics, Yale University.
  5. 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.
  6. Peter C.B. Phillips & Joon Y. Park, 1986. "Statistical Inference in Regressions with Integrated Processes: Part 1," Cowles Foundation Discussion Papers 811R, Cowles Foundation for Research in Economics, Yale University, revised Aug 1987.
  7. Yoosoon Chang, 2000. "Nonlinear IV Unit Root Tests in Panels with Cross-Sectional Dependency," CIRJE F-Series CIRJE-F-85, CIRJE, Faculty of Economics, University of Tokyo.
  8. Yoosoon Chang & Joon Y. Park & Peter C.B. Phillips, 1999. "Nonlinear Econometric Models with Cointegrated and Deterministically Trending Regressors," Cowles Foundation Discussion Papers 1245, Cowles Foundation for Research in Economics, Yale University.
  9. Phillips, Peter C. B. & Park, Joon Y. & Chang, Yoosoon, 2004. "Nonlinear instrumental variable estimation of an autoregression," Journal of Econometrics, Elsevier, vol. 118(1-2), pages 219-246.
  10. Hansen, Bruce E., 1995. "Rethinking the Univariate Approach to Unit Root Testing: Using Covariates to Increase Power," Econometric Theory, Cambridge University Press, vol. 11(05), pages 1148-1171, October.
  11. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
  12. 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.
  13. Park, Joon, 2003. "Nonstationary Nonlinearity: An Outlook for New Opportunities," Working Papers 2003-05, Rice University, Department of Economics.
  14. 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.
  15. Chang, Yoosoon & Sickles, Robin & Song, Wonho, 2001. "Bootstrapping Unit Root Tests with Covariates," Working Papers 2001-07, Rice University, Department of Economics.
  16. Peter C.B. Phillips & Hyungsik R. Moon, 1999. "Nonstationary Panel Data Analysis: An Overview of Some Recent Developments," Cowles Foundation Discussion Papers 1221, Cowles Foundation for Research in Economics, Yale University.
  17. Yoosoon Chang & Wonho Song, 2002. "Panel Unit Root Tests in the Presence of Cross-Sectional Dependency and Heterogeneity," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 B5-2, International Conferences on Panel Data.
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