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Change in persistence tests for panels

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  • Cerqueti, Roy

    ()

  • Costantini, Mauro

    ()

  • Gutierrez, Luciano

    ()

Abstract

In this paper we propose a set of new panel tests to detect changes in persistence. These statistics are used to test the null hypothesis of stationarity against the alternative of a change in persistence from I(0) to I(1) or viceversa. Alternative of unknown direction is also considered. The limiting distributions of the panel tests are derived and small sample properties are investigated by Monte Carlo experiments under the hypothesis that the individual series are cross-sectionally independently distributed. These tests have a good size and power properties. Cross-sectional dependence is also considered. A procedure of de-factorizing proposed by Stock and Watson (2002) is applied. Monte Carlo analysis is conducted and the defactored panel tests show to have good size and power. The empirical results obtained from applying these tests to a panel covering 15 European countries between 1970 and 2006 suggest that inflation rate changes from I(1) to I(0) when cross-correlation is considered.

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Bibliographic Info

Paper provided by University of Molise, Dept. EGSeI in its series Economics & Statistics Discussion Papers with number esdp07040.

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Length: 34 pages
Date of creation: 01 Oct 2007
Date of revision:
Handle: RePEc:mol:ecsdps:esdp07040

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Keywords: Persistence; Stationarity; Panel data;

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  1. Jushan Bai & Serena Ng, 2002. "Determining the Number of Factors in Approximate Factor Models," Econometrica, Econometric Society, Econometric Society, vol. 70(1), pages 191-221, January.
  2. Banerjee, Anindya & Lumsdaine, Robin L & Stock, James H, 1992. "Recursive and Sequential Tests of the Unit-Root and Trend-Break Hypotheses: Theory and International Evidence," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 10(3), pages 271-87, July.
  3. A. M. Robert Taylor, 2005. "On the use of Sub-sample Unit Root Tests to Detect Changes in Persistence," Journal of Time Series Analysis, Wiley Blackwell, Wiley Blackwell, vol. 26(5), pages 759-778, 09.
  4. Emery, Kenneth M., 1994. "Inflation persistence and Fisher effects: Evidence of a regime change," Journal of Economics and Business, Elsevier, Elsevier, vol. 46(3), pages 141-152, August.
  5. Stephen Leybourne & Tae-Hwan Kim & Vanessa Smith & Paul Newbold, 2003. "Tests for a change in persistence against the null of difference-stationarity," Econometrics Journal, Royal Economic Society, Royal Economic Society, vol. 6(2), pages 291-311, December.
  6. Robert Taylor & Stephen Leybourne & David Harvey, 2004. "Modified Tests for a Change in Persistence," Econometric Society 2004 Australasian Meetings, Econometric Society 64, Econometric Society.
  7. Donald W.K. Andrews, 1990. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 943, Cowles Foundation for Research in Economics, Yale University.
  8. Mankiw, N Gregory & Miron, Jeffrey A & Weil, David N, 1987. "The Adjustment of Expectations to a Change in Regime: A Study of the Founding of the Federal Reserve," American Economic Review, American Economic Association, American Economic Association, vol. 77(3), pages 358-74, June.
  9. Timothy Cogley & Thomas J. Sargent, 2002. "Evolving Post-World War II U.S. Inflation Dynamics," NBER Chapters, National Bureau of Economic Research, Inc, in: NBER Macroeconomics Annual 2001, Volume 16, pages 331-388 National Bureau of Economic Research, Inc.
  10. Jushan Bai, 2003. "Inferential Theory for Factor Models of Large Dimensions," Econometrica, Econometric Society, Econometric Society, vol. 71(1), pages 135-171, January.
  11. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, Econometric Society, vol. 55(2), pages 277-301, March.
  12. Costantini, Mauro & Gutierrez, Luciano, 2007. "Simple panel unit root tests to detect changes in persistence," Economics Letters, Elsevier, Elsevier, vol. 96(3), pages 363-368, September.
  13. Busetti, Fabio & Taylor, A. M. Robert, 2004. "Tests of stationarity against a change in persistence," Journal of Econometrics, Elsevier, Elsevier, vol. 123(1), pages 33-66, November.
  14. Kim, Jae-Young, 2000. "Detection of change in persistence of a linear time series," Journal of Econometrics, Elsevier, Elsevier, vol. 95(1), pages 97-116, March.
  15. Timothy J. Vogelsang, 1998. "Trend Function Hypothesis Testing in the Presence of Serial Correlation," Econometrica, Econometric Society, Econometric Society, vol. 66(1), pages 123-148, January.
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