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Testing for seasonal unit roots in heterogeneous panels using monthly data in the presence of cross sectional dependence

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Author Info
Otero, Jesús (Facultad de Economía, Universidad del Rosario)
Smith, Jeremy (Department of Economics,University of Warwick)
Giulietti, Monica (Aston Business School, University of Aston)

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Abstract

This paper generalises the monthly seasonal unit root tests of Franses (1991) for a heterogeneous panel following the work of Im, Pesaran, and Shin (2003), which we refer to as the F-IPS tests. The paper presents the mean and variance necessary to yield a standard normal distribution for the tests, for different number of time observations, T, and lag lengths. However, these tests are only applicable in the absence of cross-sectional dependence. Two alternative methods for modifying these F-IPS tests in the presence of cross-sectional dependency are presented : the first is the cross-sectionally augmented test,denoted CF-IPS, following Pesaran (2007), the other is a bootstap method, denoted BF-IPS. In general, the BF-IPS tests have greater power than the CF-IPS tests, although for large T and high degree of cross-sectional dependency the CF-IPS test dominates the BF-IPS test.

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Publisher Info
Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 865.

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Length: 30 pages
Date of creation: 2008
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Handle: RePEc:wrk:warwec:865

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Related research
Keywords: Panel unit root tests ; seasonal unit roots ; monthly data ; cross sectional dependence ; Monte Carlo;

Find related papers by JEL classification:
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods
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

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  1. Otero, Jesus & Smith, Jeremy & Giulietti, Monica, 2005. "Testing for seasonal unit roots in heterogeneous panels," Economics Letters, Elsevier, vol. 86(2), pages 229-235, February. [Downloadable!] (restricted)
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  2. Christian Dreger* & Hans-Eggert Reimers, 2005. "Panel Seasonal Unit Root Test: Further Simulation Results and An Application to Unemployment Data," AStA Advances in Statistical Analysis, Springer, vol. 89(3), pages 321-337, August. [Downloadable!] (restricted)
  3. Hylleberg, S. & Engle, R. F. & Granger, C. W. J. & Yoo, B. S., 1990. "Seasonal integration and cointegration," Journal of Econometrics, Elsevier, vol. 44(1-2), pages 215-238. [Downloadable!] (restricted)
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  4. Giulietti, Monica & Otero, Jesus & Smith, Jeremy, 2007. "Testing for seasonal unit roots in heterogeneous panels in the presence of cross section dependence," The Warwick Economics Research Paper Series (TWERPS) 784, University of Warwick, Department of Economics. [Downloadable!]
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  5. 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)
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  6. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312. [Downloadable!]
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  7. 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)
  8. Chang, Yoosoon, 2004. "Bootstrap unit root tests in panels with cross-sectional dependency," Journal of Econometrics, Elsevier, vol. 120(2), pages 263-293, June. [Downloadable!] (restricted)
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  9. PHILIP HANS FRANSES & BART HOBIJN,, 1997. "Critical values for unit root tests in seasonal time series," Journal of Applied Statistics, Taylor and Francis Journals, vol. 24(1), pages 25-48, February. [Downloadable!] (restricted)
  10. Joseph Beaulieu, J. & Miron, Jeffrey A., 1993. "Seasonal unit roots in aggregate U.S. data," Journal of Econometrics, Elsevier, vol. 55(1-2), pages 305-328. [Downloadable!] (restricted)
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