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The effects of variance breaks on homogenous panel unit root tests

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Author Info
Herwartz , Helmut
Siedenburg, Florian
Abstract

Noting that many economic variables display occasional shifts in their second order moments, we investigate the performance of homogenous panel unit root tests in the presence of permanent volatility shifts. It is shown that in this case, panel unit root tests derived under time invariant innovation variances lose control over actual significance levels while the test proposed by Herwartz and Siedenburg (2008) retains size control. A simulation study of the finite sample properties confirms the theoretical results in finite samples. As an empirical illustration, we reassess evidence on the Fisher hypothesis. --

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Paper provided by Christian-Albrechts-University of Kiel, Department of Economics in its series Economics Working Papers with number 2009,07.

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Date of creation: 2009
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Handle: RePEc:zbw:cauewp:200907

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Web page: http://www.wiso.uni-kiel.de/econ/

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Related research
Keywords: Panel unit root tests; variance breaks; cross sectional dependence; Fisher hypothesis;

Find related papers by JEL classification:
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing
E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

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This page was last updated on 2009-11-30.

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