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Heteroskedasticity‐Robust Unit Root Testing for Trending Panels

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  • Helmut Herwartz
  • Simone Maxand
  • Yabibal M. Walle

Abstract

Time‐varying volatility and linear trends are common features of several macroeconomic time series. Recent articles have proposed panel unit root tests (PURTs) that are pivotal in the presence of volatility shifts, excluding linear trends, however. This article proposes a new PURT that works well for data that is both heteroskedastic and trending. Under the null hypothesis, the test statistic has a limiting Gaussian distribution. We derive the local asymptotic power to underpin the consistency of the test statistic. Simulation results reveal that the test performs well in small samples. As an empirical illustration, we examine the stationarity of energy use per capita in OECD economies. While the series are in general difference stationary, they could also be considered as trend stationary for specific time spans.

Suggested Citation

  • Helmut Herwartz & Simone Maxand & Yabibal M. Walle, 2019. "Heteroskedasticity‐Robust Unit Root Testing for Trending Panels," Journal of Time Series Analysis, Wiley Blackwell, vol. 40(5), pages 649-664, September.
    • Handle: RePEc:bla:jtsera:v:40:y:2019:i:5:p:649-664
    DOI: 10.1111/jtsa.12446
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    More about this item

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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