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Testing for Panel Unit Roots under General Cross-Sectional Dependence

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  • Holgersson, Thomas

    ()
    (Jönköping International Business School, and Linnaeus University)

  • Månsson, Kristofer

    ()
    (Jönköping International Business School)

  • Shukur, Ghazi

    ()
    (Jönköping International Business School, and Linnaeus University)

Abstract

In this paper we generalize four tests of multivariate linear hypothesis to panel data unit root testing. The test statistics are invariant to certain linear transformations of data and therefore simulated critical values may conveniently be used. It is demonstrated that all four tests remains well behaved in cases of where there are heterogeneous alternatives and cross-correlations between marginal variables. A Monte Carlo simulation is included to compare and contrast the tests with two well-established ones.

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Bibliographic Info

Paper provided by Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies in its series Working Paper Series in Economics and Institutions of Innovation with number 327.

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Length: 19 pages
Date of creation: 21 Oct 2013
Date of revision:
Handle: RePEc:hhs:cesisp:0327

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Postal: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, SE-100 44 Stockholm, Sweden
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Web page: http://www.infra.kth.se/cesis/
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Keywords: panel data; unit roots; linear hypothesis; invariance;

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  1. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
  2. Peter C. B. Phillips & Donggyu Sul, 2003. "Dynamic panel estimation and homogeneity testing under cross section dependence *," Econometrics Journal, Royal Economic Society, vol. 6(1), pages 217-259, 06.
  3. 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.
  4. Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
  5. Maddala, G S & Wu, Shaowen, 1999. " A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-52, Special I.
  6. Choi, In, 2002. "Instrumental variables estimation of a nearly nonstationary, heterogeneous error component model," Journal of Econometrics, Elsevier, vol. 109(1), pages 1-32, July.
  7. 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.
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