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Bootstrap Sequential Tests to Determine the Stationary Units in a Panel

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  • Smeekes Stephan

    (METEOR)

Abstract

We propose an approach to investigate the stationarity properties of individual units in a panel based on testing user-defined increasing proportions of hypothesized stationary units sequentially. Asymptotically valid critical values are obtained using the block bootstrap. This sequential approach has an advantage over multiple testing approaches, in particular if N is large and T is small, as it can exploit the cross-sectional dimension, which the multiple testing approaches cannot do effectively. A simulation study is conducted to analyze the relative performance of the approach in comparison with multiple testing approaches. The method is also illustrated by two empirical applications, in testing for unit roots in real exchange rates and log earnings data of households. The simulation study and applications demonstrate the usefulness of our method, in particular in panels with large N and small T.

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Bibliographic Info

Paper provided by Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR) in its series Research Memorandum with number 003.

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Date of creation: 2011
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Handle: RePEc:unm:umamet:2011003

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Keywords: econometrics;

References

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  1. Hyungsik Roger Moon & Benoit Perron, 2011. "Beyond Panel Unit Root Tests: Using Multiple Testing to Determine the Non Stationarity Properties of Individual Series in a Panel," CIRANO Working Papers, CIRANO 2011s-17, CIRANO.
  2. Halbert White, 2000. "A Reality Check for Data Snooping," Econometrica, Econometric Society, Econometric Society, vol. 68(5), pages 1097-1126, September.
  3. Alan M. Taylor, 2002. "A Century Of Purchasing-Power Parity," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 139-150, February.
  4. Smeekes, Stephan & Taylor, A.M. Robert, 2012. "Bootstrap Union Tests For Unit Roots In The Presence Of Nonstationary Volatility," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 28(02), pages 422-456, April.
  5. Efstathios Paparoditis & Dimitris N. Politis, 2003. "Residual-Based Block Bootstrap for Unit Root Testing," Econometrica, Econometric Society, Econometric Society, vol. 71(3), pages 813-855, 05.
  6. Andrews, Donald W K, 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, Econometric Society, Econometric Society, vol. 59(3), pages 817-58, May.
  7. Costas Meghir & Luigi Pistaferri, 2001. "Income variance dynamics and heterogenity," IFS Working Papers, Institute for Fiscal Studies W01/07, Institute for Fiscal Studies.
  8. Palm, Franz C. & Smeekes, Stephan & Urbain, Jean-Pierre, 2011. "Cross-sectional dependence robust block bootstrap panel unit root tests," Journal of Econometrics, Elsevier, Elsevier, vol. 163(1), pages 85-104, July.
  9. Pierre Perron & Zhongjun Qu, 2006. "A Simple Modification to Improve the Finite Sample Properties of Ng and Perron’s Unit Root Tests," Boston University - Department of Economics - Working Papers Series, Boston University - Department of Economics WP2006-010, Boston University - Department of Economics.
  10. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, Elsevier, vol. 115(1), pages 53-74, July.
  11. Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, Econometric Society, vol. 69(6), pages 1519-1554, November.
  12. Joseph Romano & Azeem Shaikh & Michael Wolf, 2008. "Control of the false discovery rate under dependence using the bootstrap and subsampling," TEST: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer, Springer, vol. 17(3), pages 417-442, November.
  13. Joseph P. Romano & Michael Wolf, 2005. "Stepwise Multiple Testing as Formalized Data Snooping," Econometrica, Econometric Society, Econometric Society, vol. 73(4), pages 1237-1282, 07.
  14. Joseph P & Romano & Azeem M. Shaikh & Michael Wolf, 2005. "Formalized Data Snooping Based on Generalized Error Rates," IEW - Working Papers, Institute for Empirical Research in Economics - University of Zurich 259, Institute for Empirical Research in Economics - University of Zurich.
  15. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, Econometric Society, vol. 64(4), pages 813-36, July.
  16. Harvey, David I. & Leybourne, Stephen J. & Taylor, A.M. Robert, 2009. "Unit Root Testing In Practice: Dealing With Uncertainty Over The Trend And Initial Condition," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 25(03), pages 587-636, June.
  17. Westerlund, Joakim & Breitung, Jörg, 2009. "Myths and Facts about Panel Unit Root Tests," Working Papers in Economics, University of Gothenburg, Department of Economics 380, University of Gothenburg, Department of Economics.
  18. Deckers, Thomas & Hanck, Christoph, 2009. "Multiple Testing Techniques in Growth Econometrics," MPRA Paper 17843, University Library of Munich, Germany.
  19. Martin Wagner, 2008. "On PPP, unit roots and panels," Empirical Economics, Springer, Springer, vol. 35(2), pages 229-249, September.
  20. Ng, Serena, 2008. "A Simple Test for Nonstationarity in Mixed Panels," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 26, pages 113-127, January.
  21. George Kapetanios, 2003. "Determining the Stationarity Properties of Individual Series in Panel Datasets," Working Papers, Queen Mary, University of London, School of Economics and Finance 495, Queen Mary, University of London, School of Economics and Finance.
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Citations

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Cited by:
  1. Di Iorio, Francesca & Fachin, Stefano, 2010. "A Panel Cointegration study of the long-run relationship between Savings and Investments in the OECD economies, 1970-2007," MPRA Paper 25873, University Library of Munich, Germany.
  2. Francesca Iorio & Stefano Fachin, 2014. "Savings and investments in the OECD: a panel cointegration study with a new bootstrap test," Empirical Economics, Springer, Springer, vol. 46(4), pages 1271-1300, June.
  3. Christoph Hanck & Robert Czudaj, 2013. "Nonstationary-Volatility Robust Panel Unit Root Tests and the Great Moderation," Ruhr Economic Papers, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen 0434, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  4. Joakim Westerlund & Johan Blomquist, 2013. "A modified LLC panel unit root test of the PPP hypothesis," Empirical Economics, Springer, Springer, vol. 44(2), pages 833-860, April.
  5. Francesca Di Iorio & Stefano Fachin, 2012. "Savings and Investments in the OECD: a panel cointegration study with a new bootstrap test," DSS Empirical Economics and Econometrics Working Papers Series, Centre for Empirical Economics and Econometrics, Department of Statistics, "Sapienza" University of Rome 2012/2, Centre for Empirical Economics and Econometrics, Department of Statistics, "Sapienza" University of Rome.

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