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Testing for Stationarity in Panel Data Models when Disturbances are Cross-Sectionally Correlated

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  • Jönsson, Kristian

    ()
    (Sveriges Riksbank)

Abstract

In this paper, we investigate the effects of cross-sectional disturbance correlation on a previously suggested panel data stationarity test. We find that the previously suggested test has a serious size distortion if the disturbances to different cross sections are correlated. We suggest a new panel data test procedure that also tests the null hypothesis of stationarity. However, the test procedure that we suggest is robust against the presence of cross-sectional disturbance correlation, as well as serial correlation. Furthermore, the test has an approximate normal distribution and which makes p-values and critical values easy to obtain. By applying our test to investigate output convergence, we illustrate the adverse effects that can occur when neglecting to account for cross-sectional correlation when testing for stationarity in panel data models.

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File URL: http://project.nek.lu.se/publications/workpap/Papers/WP04_17.pdf
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Bibliographic Info

Paper provided by Lund University, Department of Economics in its series Working Papers with number 2004:17.

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Length: 25 pages
Date of creation: 04 Jun 2004
Date of revision: 26 Nov 2004
Handle: RePEc:hhs:lunewp:2004_017

Contact details of provider:
Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden
Phone: +46 +46 222 0000
Fax: +46 +46 2224613
Web page: http://www.nek.lu.se/en
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Related research

Keywords: Panel-Data Stationarity; Cross-Sectional Dependence; Output Convergence;

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References

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Citations

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Cited by:
  1. José García-Solanes & Francisco I. Sancho-Portero & Fernando Torrejón-Flores, 2007. "Beyond the Salassa-Samuelson Effect in some New Member States of the European Union," CESifo Working Paper Series 1886, CESifo Group Munich.
  2. Kristian Jonsson, 2006. "Time-specific disturbances and cross-sectional dependency in a small-sample heterogeneous panel data unit root test," Applied Economics, Taylor & Francis Journals, vol. 38(11), pages 1309-1317.

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