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Change in persistence tests for panels: An update and some new results

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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. The test statistics are used to test the null hypothesis of stationarity against the alternative of a change in persistence from I(0) to I(1), from I(1) to I(0) and in an unknown direction. 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 independently cross-section 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. The defactored panel tests have good size and power. The empirical results obtained from applying these tests to a panel covering 21 OECD countries observed between 1970 and 2007 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 esdp08043.

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Length: 35 pages
Date of creation: 31 Mar 2008
Date of revision:
Handle: RePEc:mol:ecsdps:esdp08043

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Keywords: Persistence; Stationarity; Panel data;

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  1. 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.
  2. Robert Taylor & Stephen Leybourne & David Harvey, 2004. "Modified Tests for a Change in Persistence," Econometric Society 2004 Australasian Meetings, Econometric Society 64, Econometric Society.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, Econometric Society, vol. 55(2), pages 277-301, March.
  8. 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.
  9. 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.
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