Testing for Panel Unit Roots in the Presence of Spatial Dependency
AbstractIn this the size and power properties of the common factor Im, Pesaran and Shin (CIPS), Wald (W), likelihood ratio (LR) and Lagrange multiplier (LM) tests are investigated when the error term follows a spatial error model. The results from the Monte Carlo simulations used in this study, firstly show that the CIPS test over-estimates the nominal size. Secondly, the simulated results shows that the empirical size of the W test approaches the nominal size quickly while the LR and LM tests underestimates the null hypothesis in both small and moderate sample sizes. Finally, the results also show that even though the LM and LR test under-reject the true null hypothesis they have higher power than the W test.
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Bibliographic InfoPaper provided by HUI Research in its series HUI Working Papers with number 71.
Length: 16 pages
Date of creation: 31 Oct 2012
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Panel data; unit root tests; spatial dependency; Monte Carlo simulations;
Find related papers by JEL classification:
- C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
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