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A Simple Panel Stationarity Test in the Presence of Cross-Sectional Dependence

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  • Hadri, Kaddour
  • Kurozumi, Eiji

Abstract

This paper develops a simple test for the null hypothesis of stationarity in heterogeneous panel data with cross-sectional dependence in the form of a common factor in the disturbance. We do not estimate the common factor but mop-up its effect by employing the same method as the one proposed in Pesaran (2007) in the unit root testing context. Our test is basically the same as the KPSS test but the regression is augmented by cross-sectional average of the observations. We also develop a Lagrange multiplier (LM) test allowing for cross-sectional dependence and, under restrictive assumptions, compare our augmented KPSS test with the extended LM test under the null of stationarity, under the local alternative and under the fixed alternative, and discuss the differences between these two tests. We also extend our test to the more realistic case where the shocks are serially correlated. We use Monte Carlo simulations to examine the finite sample property of the augmented KPSS test.

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Bibliographic Info

Paper provided by Center for Research on Contemporary Economic Systems, Graduate School of Economics, Hitotsubashi University in its series CCES Discussion Paper Series with number 7.

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Length: 35 p.
Date of creation: Dec 2008
Date of revision:
Handle: RePEc:hit:ccesdp:7

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Keywords: Panel data; stationarity; KPSS test; cross-sectional dependence; LM test; locally best test;

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  1. Kaddour Hadri, 1999. "Testing For Stationarity In Heterogeneous Panel Data," Research Papers, University of Liverpool Management School 1999_04, University of Liverpool Management School.
  2. Peter C. B. Phillips & Hyungsik R. Moon, 1999. "Linear Regression Limit Theory for Nonstationary Panel Data," Econometrica, Econometric Society, Econometric Society, vol. 67(5), pages 1057-1112, September.
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  6. Kaddour Hadri & Rolf Larsson, 2005. "Testing for stationarity in heterogeneous panel data where the time dimension is finite," Econometrics Journal, Royal Economic Society, Royal Economic Society, vol. 8(1), pages 55-69, 03.
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Citations

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Cited by:
  1. Maria Christidou & Theodore Panagiotidis, 2010. "Purchasing Power Parity and the European Single Currency: Some New Evidence," Discussion Paper Series 2010_03, Department of Economics, University of Macedonia, revised Apr 2010.
  2. Eiji Kurozumi & Daisuke Yamazaki & Kaddour Hadri, 2012. "Covariate Unit Root Test for Cross-Sectionally Dependent Panel Data," Global COE Hi-Stat Discussion Paper Series, Institute of Economic Research, Hitotsubashi University gd12-256, Institute of Economic Research, Hitotsubashi University.
  3. Vishal Jaunky, 2013. "The Wealth-Health Nexus: New Global Evidence," Atlantic Economic Journal, International Atlantic Economic Society, International Atlantic Economic Society, vol. 41(2), pages 115-122, June.
  4. Maria Christisou & Theodore Panagiotidis & Abhijit Sharma, 2013. "On the stationarity of per capita carbon dioxide emissions over a century," Discussion Paper Series 2013_02, Department of Economics, University of Macedonia, revised Dec 2013.
  5. Declan French, 2012. "Causation between health and income: a need to panic," Empirical Economics, Springer, Springer, vol. 42(2), pages 583-601, April.
  6. Venturini, Francesco, 2012. "Looking into the black box of Schumpeterian growth theories: An empirical assessment of R&D races," European Economic Review, Elsevier, Elsevier, vol. 56(8), pages 1530-1545.
  7. Evangelia Papapetrou & Dimitrios Bakas, 2012. "Unemployment in Greece: evidence from Greek regions," Working Papers, Bank of Greece 146, Bank of Greece.
  8. Vishal Jaunky, 2013. "Democracy and economic growth in Sub-Saharan Africa: a panel data approach," Empirical Economics, Springer, Springer, vol. 45(2), pages 987-1008, October.

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