We present a test of the null hypothesis of stationarity against unit root alternatives for panel data that allows for arbitrary cross- sectional dependence. We treat the short run time series dynamics non- parametrically and thus avoid the need to fit separate models for the individual series. The statistic is simple to compute and is asymptotically normally distributed, even in the presence of a wide range of deterministic components. Taken together, these features provide a generally applicable solution to the problem of testing for stationarity versus unit roots in macro-panel based data. The test is applied to assess the validity of the purchasing power parity hypothesis and finds significant evidence against the hypothesis being true.
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Paper provided by EconWPA in its series Econometrics with number
0311005.
Length: 21 pages Date of creation: 17 Nov 2003 Date of revision: Handle: RePEc:wpa:wuwpem:0311005
Note: Type of Document - ; pages: 21 Contact details of provider: Web page: http://129.3.20.41
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