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Testing for Panel Unit Roots in the Presence of Spatial Dependency

Author

Listed:
  • Månsson, Kristofer

    (Department of Econmics, Finance and Statistics)

  • Shukur, Ghazi

    (Department of Econmics, Finance and Statistics)

  • Sjölander, Pär

    (Department of Econmics, Finance and Statistics)

Abstract

In 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.

Suggested Citation

  • Månsson, Kristofer & Shukur, Ghazi & Sjölander, Pär, 2012. "Testing for Panel Unit Roots in the Presence of Spatial Dependency," HUI Working Papers 71, HUI Research.
    • Handle: RePEc:hhs:huiwps:0071
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Panel data; unit root tests; spatial dependency; Monte Carlo simulations;
    All these keywords.

    JEL classification:

    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General

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