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Breaking trend panel unit root tests

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  • Pui Sun Tam
  • University of Macau

Abstract

This paper proposes Lagrange Multiplier based panel unit root tests allowing for structural breaks through simple extensions of existing group mean and combination tests. The proposed tests are more general than those previously suggested. They consider potential breaks in the intercept, in the slope, and both. A desirable property of the tests is their flexibility to accommodate heterogeneous break types across cross-sections in a panel. Response surfaces to approximate finite sample distributions of the underlying test statistics required to implement the panel tests are provided. The tests are analyzed for the case when the break dates are known and for the case when they are endogenously determined. A bootstrap test is further suggested to deal with cross-sectional dependency. The proposed tests are applied to two major macroeconomic variables, per capital gross domestic product and consumer prices of OECD countries

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Bibliographic Info

Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2006 with number 341.

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Date of creation: 04 Jul 2006
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Handle: RePEc:sce:scecfa:341

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Keywords: Panel unit root; structural breaks; response surface; bootstrap;

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