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A Nonlinear Panel Unit Root Test under Cross Section Dependence

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Author Info
Mario Cerrato
Christian de Peretti
Nick Sarantis

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Abstract

We propose a nonlinear heterogeneous panel unit root test for testing the null hypothesis of unit-roots processes against the alternative that allows a proportion of units to be generated by globally stationary ESTAR processes and a remaining non-zero proportion to be generated by unit root processes. The proposed test is simple to implement and accommodates cross sectional dependence. Monte Carlo simulation shows that our test holds correct size and under the hypothesis that data are generated by globally stationary ESTAR processes has a better power than the recent test proposed in Pesaran [2005]. An application to a panel of bilateral real exchange rate series with the US Dollar from the 20 major OECD countries is provided.

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Publisher Info
Paper provided by Department of Economics, University of Glasgow in its series Working Papers with number 2008_08.

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Date of creation: Mar 2008
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Handle: RePEc:gla:glaewp:2008_08

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Postal: Adam Smith Building, University of Glasgow, Glasgow G12 8RT
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Web page: http://www.gla.ac.uk/departments/economics/
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Related research
Keywords: Nonlinear panel unit root tests; cross sectional dependence.;

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Find related papers by JEL classification:
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
F31 - International Economics - - International Finance - - - Foreign Exchange

References listed on IDEAS
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. M. Hashem Pesaran & Elisa Tosetti, 2007. "Large Panels with Common Factors and Spatial Correlations," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  2. Kapetanios, George & Shin, Yongcheol & Snell, Andy, 2003. "Testing for a unit root in the nonlinear STAR framework," Journal of Econometrics, Elsevier, vol. 112(2), pages 359-379, February. [Downloadable!] (restricted)
  3. Frank, Murray & Gencay, Ramazan & Stengos, Thanasis, 1988. "International chaos?," European Economic Review, Elsevier, vol. 32(8), pages 1569-1584, October. [Downloadable!] (restricted)
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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. Mario Cerrato & Christian de Peretti & Chris Stewart, 2008. "Is the consumption-income ratio stationary? Evidence from a nonlinear panel unit root test for OECD and non-OECD countries," Working Papers 2008_27, Department of Economics, University of Glasgow. [Downloadable!]
  2. Chen, Shu-Ling & Kim, Hyeongwoo, 2008. "Nonlinear Mean Reversion across National Stock Markets: Evidence from Emerging Asian Markets," MPRA Paper 18680, University Library of Munich, Germany, revised Nov 2009. [Downloadable!]
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This page was last updated on 2009-12-16.

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