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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
  • Rolf Larsson
  • Nicholas Sarantis

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. We show that the distribution of the test statistic is free of nuisance parameters as (N, T) −∞. 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 [2007]. Various applications are provided

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Bibliographic Info

Paper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 2011_08.

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Date of creation: May 2011
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Handle: RePEc:gla:glaewp:2011_08

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Keywords: Nonlinear panel unit root tests; cross sectional dependence.;

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References

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  1. Cerrato, Mario & Sarantis, Nicholas, 2007. "A bootstrap panel unit root test under cross-sectional dependence, with an application to PPP," Computational Statistics & Data Analysis, Elsevier, vol. 51(8), pages 4028-4037, May.
  2. Balke, Nathan S & Fomby, Thomas B, 1997. "Threshold Cointegration," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(3), pages 627-45, August.
  3. Peretto, Pietro F., 1997. "Industrial Development, Technological Change, and Long-RunGrowth," Working Papers 97-10, Duke University, Department of Economics.
  4. 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.
  5. Oded Galor & David N. Weil, 1998. "Population, Technology, and Growth: From the Malthusian Regime to the Demographic Transition," Working Papers 98-1, Brown University, Department of Economics, revised 19 Aug 1998.
  6. P. Newbold & S. J. Leybourne & R. Sollis & M. E. Wohar, 2001. "U.S. and U.K. Interest Rates 1890 - 1934: New Evidence on Structural Breaks," Trinity Economics Papers 20011, Trinity College Dublin, Department of Economics.
  7. M. Hashem Pesaran & Elisa Tosetti, 2011. "Large panels with common factors and spatial correlation," Post-Print peer-00796743, HAL.
  8. Fiaschi, Davide & Lavezzi, Andrea Mario, 2007. "Nonlinear economic growth: Some theory and cross-country evidence," Journal of Development Economics, Elsevier, vol. 84(1), pages 271-290, September.
  9. Robert B. Davies, 2002. "Hypothesis testing when a nuisance parameter is present only under the alternative: Linear model case," Biometrika, Biometrika Trust, vol. 89(2), pages 484-489, June.
  10. Frank, Murray & Gencay, Ramazan & Stengos, Thanasis, 1988. "International chaos?," European Economic Review, Elsevier, vol. 32(8), pages 1569-1584, October.
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Cited by:
  1. Cushman, David O. & Michael, Nils, 2011. "Nonlinear trends in real exchange rates: A panel unit root test approach," Journal of International Money and Finance, Elsevier, vol. 30(8), pages 1619-1637.
  2. Shu-Ling Chen & Hyeongwoo Kim, 2011. "Nonlinear Mean Reversion across National Stock Markets: Evidence from Emerging Asian Markets," International Economic Journal, Korean International Economic Association, vol. 25(2), pages 239-250.
  3. Matteo Lanzafame, 2006. "The Nature of Regional Unemployment in Italy," ERSA conference papers ersa06p155, European Regional Science Association.
  4. Barry Harrison & Winston Moore, 2010. "Nonlinearities in Stock Returns for Some Recent Entrants to the EU," Working Papers 2010/1, Nottingham Trent University, Nottingham Business School, Economics Division.
  5. Herrerias, M.J. & Ordoñez, J., 2012. "New evidence on the role of regional clusters and convergence in China (1952–2008)," China Economic Review, Elsevier, vol. 23(4), pages 1120-1133.
  6. Lanzafame, Matteo, 2012. "Current account sustainability in advanced economies," MPRA Paper 42384, University Library of Munich, Germany.
  7. 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, Business School - Economics, University of Glasgow.
  8. LAU, Chi Keung Marco, 2010. "New evidence about regional income divergence in China," China Economic Review, Elsevier, vol. 21(2), pages 293-309, June.
  9. Chi-Keung Lau, 2010. "Convergence Across the United States: Evidence from Panel ESTAR Unit Root Test," International Advances in Economic Research, Springer, vol. 16(1), pages 52-64, February.

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