This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Incidental Trends and the Power of Panel Unit Root Tests

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Hyungsik Roger Moon
Benoit Perron
Peter C.B. Phillips

Additional information is available for the following registered author(s):

Abstract

The asymptotic local power of various panel unit root tests are investigated. The (Gaussian) power envelope is obtained under homogeneous and heterogeneous alternatives. The envelope is compared with the asymptotic power functions for the pooled t- test, the Ploberger-Phillips (2002) test, and a point optimal test in neighborhoods of unity that are of order n^(1/4)T^(-1) and n^(1/2)T^(-1); depending on whether or not incidental trends are extracted from the panel data. In the latter case, when the alternative hypothesis is homogeneous across individuals, it is shown that the point optimal test and the Ploberger-Phillips test both achieve the power envelope and are uniformly most powerful, in contrast to point optimal unit root tests for time series. Some simulations examining the finite sample performance of the tests are reported.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.usc.edu/dept/LAS/economics/IEPR/Working%20Papers/IEPR_05.38_%5BMoon,Perron,Phillips%5D.pdf
File Format: application/pdf
File Function: First version, 2005
Download Restriction: no

Publisher Info
Paper provided by Institute of Economic Policy Research (IEPR) in its series IEPR Working Papers with number 05.38.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 63 pages
Date of creation: Oct 2005
Date of revision:
Handle: RePEc:scp:wpaper:05-38

Contact details of provider:
Phone: (213) 740-3521
Fax: (213) 740-3522
Web page: http://www.usc.edu/dept/LAS/economics/IEPR/
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Farideh Motamedi).

Related research
Keywords: Asymptotic power envelope; common point optimal test; heterogeneous alternatives; incidental trends; local to unity; power function; panel unit root test;

Other versions of this item:

Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Jushan Bai & Serena Ng, 2004. "A PANIC Attack on Unit Roots and Cointegration," Econometrica, Econometric Society, vol. 72(4), pages 1127-1177, 07. [Downloadable!] (restricted)
    Other versions:
  2. Hyungsik R. Moon & Peter C.B. Phillips, . "Maximum Likelihood Estimation in Panels with Incidental Trends," University of California at Santa Barbara, Economics Working Paper Series 6-99, Department of Economics, UC Santa Barbara. [Downloadable!]
    Other versions:
  3. MOON, Hyungsik Roger & PERRON, Benoit., 2002. "Testing for a Unit Root in Panels with Dynamic Factors," Cahiers de recherche 2002-18, Universite de Montreal, Departement de sciences economiques. [Downloadable!]
    Other versions:
  4. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March. [Downloadable!] (restricted)
    Other versions:
  5. Dufour, Jean-Marie & King, Maxwell L., 1991. "Optimal invariant tests for the autocorrelation coefficient in linear regressions with stationary or nonstationary AR(1) errors," Journal of Econometrics, Elsevier, vol. 47(1), pages 115-143, January. [Downloadable!] (restricted)
  6. Andrews, Donald W K, 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, Econometric Society, vol. 59(3), pages 817-58, May. [Downloadable!] (restricted)
    Other versions:
  7. Quah, D., 1993. "Exploiting Cross Section Variation for Unit Root Inference in Dynamic Data," Papers 549, Stockholm - International Economic Studies.
    Other versions:
  8. Phillips, Peter C. B., 2002. "New unit root asymptotics in the presence of deterministic trends," Journal of Econometrics, Elsevier, vol. 111(2), pages 323-353, December. [Downloadable!] (restricted)
    Other versions:
  9. Hyungsik Roger Moon & Peter C. B. Phillips, 2004. "GMM Estimation of Autoregressive Roots Near Unity with Panel Data," Econometrica, Econometric Society, vol. 72(2), pages 467-522, 03. [Downloadable!] (restricted)
    Other versions:
  10. Hyungsik Roger Moon & Benoit Perron, 2008. "Asymptotic local power of pooled t-ratio tests for unit roots in panels with fixed effects," Econometrics Journal, Royal Economic Society, vol. 11(1), pages 80-104, 03. [Downloadable!] (restricted)
  11. Peter C. B. Phillips & Donggyu Sul, 2003. "Dynamic panel estimation and homogeneity testing under cross section dependence *," Econometrics Journal, Royal Economic Society, vol. 6(1), pages 217-259, 06. [Downloadable!] (restricted)
  12. Peter C.B. Phillips & Hyungsik R. Moon, 1999. "Linear Regression Limit Theory for Nonstationary Panel Data," Cowles Foundation Discussion Papers 1222, Cowles Foundation, Yale University. [Downloadable!]
    Other versions:
  13. Evans, G B A & Savin, N E, 1984. "Testing for Unit Roots: 2," Econometrica, Econometric Society, vol. 52(5), pages 1241-69, September. [Downloadable!] (restricted)
  14. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-36, July. [Downloadable!] (restricted)
    Other versions:
  15. Choi, In, 2001. "Unit root tests for panel data," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 249-272, April. [Downloadable!] (restricted)
  16. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May. [Downloadable!] (restricted)
    Other versions:
  17. Peter C.B. Phillips, 1995. "Unit Root Tests," Cowles Foundation Discussion Papers 1104, Cowles Foundation, Yale University. [Downloadable!]
  18. Maddala, G S & Wu, Shaowen, 1999. " A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-52, Special I. [Downloadable!] (restricted)
  19. J. Breitung, . "The Local Power of Some Unit Root Tests for Panel Data," Sonderforschungsbereich 373 1999-69, Humboldt Universitaet Berlin.
  20. Hyungsik Roger Moon & Benoit Perron, 2005. "An Empirical Analysis of Nonstationarity in Panels of Exchange Rates and Interest Rates with Factors," IEPR Working Papers 05.35, Institute of Economic Policy Research (IEPR). [Downloadable!]
  21. Newey, Whitney K & West, Kenneth D, 1994. "Automatic Lag Selection in Covariance Matrix Estimation," Review of Economic Studies, Blackwell Publishing, vol. 61(4), pages 631-53, October. [Downloadable!] (restricted)
    Other versions:
  22. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Breitung, J. & Pesaran, M.H., 2005. "Unit Roots and Cointegration in Panels," Cambridge Working Papers in Economics 0535, Faculty of Economics, University of Cambridge. [Downloadable!]
    Other versions:
  2. Jönsson, Kristian, 2004. "Testing for Stationarity in Panel Data Models when Disturbances are Cross-Sectionally Correlated," Working Papers 2004:17, Lund University, Department of Economics, revised 26 Nov 2004. [Downloadable!]
  3. Chirok Han & Peter C.B. Phillips, 2007. "GMM Estimation for Dynamic Panels with Fixed Effects and Strong Instruments at Unity," Cowles Foundation Discussion Papers 1599, Cowles Foundation, Yale University. [Downloadable!]
  4. Benoit Perron & Hyungsik Roger Moon, 2007. "An empirical analysis of nonstationarity in a panel of interest rates with factors," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 383-400. [Downloadable!]
  5. Claude Lopez, 2005. "A Panel Unit Root Test with Good Power in Small Samples," University of Cincinnati, Economics Working Papers Series 2005-01, University of Cincinnati, Department of Economics, revised 2007. [Downloadable!]
    Other versions:
  6. Erik Hjalmarsson, 2005. "Estimation of average local-to-unity roots in heterogenous panels," International Finance Discussion Papers 852, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  7. Hyungsik Roger Moon & Benoit Perron, 2005. "An Empirical Analysis of Nonstationarity in Panels of Exchange Rates and Interest Rates with Factors," IEPR Working Papers 05.35, Institute of Economic Policy Research (IEPR). [Downloadable!]
  8. Palm, Franz C. & Smeekes, Stephan & Urbain, Jean-Pierre, 2008. "Cross-Sectional Dependence Robust Block Bootstrap Panel Unit Root Tests," Research Memoranda 048, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
Statistics
Access and download statistics

Did you know? You can create your own reading lists on IDEAS.

This page was last updated on 2009-11-13.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.