IDEAS home Printed from https://ideas.repec.org/a/bla/obuest/v68y2006i4p519-540.html
   My bibliography  Save this article

Panel Unit‐root Tests for Cross‐sectionally Correlated Panels: A Monte Carlo Comparison

Author

Listed:
  • Luciano Gutierrez

Abstract

This paper deals with the finite‐sample performance of a set of unit‐root tests for cross‐correlated panels. Most of the available macroeconomic time series cover short time periods. The lack of information, in terms of time observations, implies that univariate tests are not powerful enough to reject the null of a unit‐root while panel tests, by exploiting the large number of cross‐sectional units, have been shown to be a promising way of increasing the power of unit‐root tests. We investigate the finite sample properties of recently proposed panel unit‐root tests for cross‐sectionally correlated panels. Specifically, the size and power of Choi's [Econometric Theory and Practice: Frontiers of Analysis and Applied Research: Essays in Honor of Peter C. B. Phillips, Cambridge University Press, Cambridge (2001)], Bai and Ng's [Econometrica (2004), Vol. 72, p. 1127], Moon and Perron's [Journal of Econometrics (2004), Vol. 122, p. 81], and Phillips and Sul's [Econometrics Journal (2003), Vol. 6, p. 217] tests are analysed by a Monte Carlo simulation study. In synthesis, Moon and Perron's tests show good size and power for different values of T and N, and model specifications. Focusing on Bai and Ng's procedure, the simulation study highlights that the pooled Dickey–Fuller generalized least squares test provides higher power than the pooled augmented Dickey–Fuller test for the analysis of non‐stationary properties of the idiosyncratic components. Choi's tests are strongly oversized when the common factor influences the cross‐sectional units heterogeneously.

Suggested Citation

  • Luciano Gutierrez, 2006. "Panel Unit‐root Tests for Cross‐sectionally Correlated Panels: A Monte Carlo Comparison," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(4), pages 519-540, August.
    • Handle: RePEc:bla:obuest:v:68:y:2006:i:4:p:519-540
    DOI: 10.1111/j.1468-0084.2006.00176.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1468-0084.2006.00176.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1468-0084.2006.00176.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Choi, In, 2001. "Unit root tests for panel data," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 249-272, April.
    2. Jushan Bai & Serena Ng, 2002. "Determining the Number of Factors in Approximate Factor Models," Econometrica, Econometric Society, vol. 70(1), pages 191-221, January.
    3. Moon, Hyungsik Roger & Perron, Benoit & Phillips, Peter C.B., 2007. "Incidental trends and the power of panel unit root tests," Journal of Econometrics, Elsevier, vol. 141(2), pages 416-459, December.
    4. Moon, H.R.Hyungsik Roger & Perron, Benoit, 2004. "Testing for a unit root in panels with dynamic factors," Journal of Econometrics, Elsevier, vol. 122(1), pages 81-126, September.
    5. Backus, David K & Kehoe, Patrick J, 1992. "International Evidence of the Historical Properties of Business Cycles," American Economic Review, American Economic Association, vol. 82(4), pages 864-888, September.
    6. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-836, July.
    7. G. S. Maddala & Shaowen Wu, 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(S1), pages 631-652, November.
    8. 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 631-652, Special I.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Valérie Mignon & Christophe Hurlin, 2005. "Une synthèse des tests de racine unitaire sur données de panel," Économie et Prévision, Programme National Persée, vol. 169(3), pages 253-294.
    2. Breitung, Jörg & Pesaran, Mohammad Hashem, 2005. "Unit roots and cointegration in panels," Discussion Paper Series 1: Economic Studies 2005,42, Deutsche Bundesbank.
    3. Claude Lopez, 2009. "A Panel Unit Root Test with Good Power in Small Samples," Econometric Reviews, Taylor & Francis Journals, vol. 28(4), pages 295-313.
    4. Cristina Brasili & Luciano Gutierrez, 2004. "Regional convergence across European Union," Development and Comp Systems 0402002, University Library of Munich, Germany.
    5. Pedroni, Peter L. & Vogelsang, Timothy J. & Wagner, Martin & Westerlund, Joakim, 2015. "Nonparametric rank tests for non-stationary panels," Journal of Econometrics, Elsevier, vol. 185(2), pages 378-391.
    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.
    7. Jushan Bai & Josep Lluís Carrion‐i‐Silvestre, 2013. "Testing panel cointegration with unobservable dynamic common factors that are correlated with the regressors," Econometrics Journal, Royal Economic Society, vol. 16(2), pages 222-249, June.
    8. Martin Wagner, 2008. "On PPP, unit roots and panels," Empirical Economics, Springer, vol. 35(2), pages 229-249, September.
    9. Guglielmo Maria Caporale & Christoph Hanck, 2010. "Are PPP tests erratically behaved? Some panel evidence," International Review of Applied Economics, Taylor & Francis Journals, vol. 24(2), pages 203-221.
    10. Pesaran, M. Hashem & Vanessa Smith, L. & Yamagata, Takashi, 2013. "Panel unit root tests in the presence of a multifactor error structure," Journal of Econometrics, Elsevier, vol. 175(2), pages 94-115.
    11. Wagner, Martin, 2008. "The carbon Kuznets curve: A cloudy picture emitted by bad econometrics?," Resource and Energy Economics, Elsevier, vol. 30(3), pages 388-408, August.
    12. Alejandro C. García-Cintado & Diego Romero-Ávila & Carlos Usabiaga, 2016. "The economic integration of Spain: a change in the inflation pattern," Latin American Economic Review, Springer;Centro de Investigaciòn y Docencia Económica (CIDE), vol. 25(1), pages 1-41, December.
    13. Hanck, Christoph, 2008. "An intersection test for panel unit roots," Technical Reports 2008,11, Technische Universität Dortmund, Sonderforschungsbereich 475: Komplexitätsreduktion in multivariaten Datenstrukturen.
    14. Karikallio, Hanna, 2015. "Cross-commodity Price Transmission and Integration of the EU Livestock Market of Pork and Beef: Panel Time-series Approach," 2015 Conference, August 9-14, 2015, Milan, Italy 211832, International Association of Agricultural Economists.
    15. Moon, Hyungsik Roger & Perron, Benoit & Phillips, Peter C.B., 2007. "Incidental trends and the power of panel unit root tests," Journal of Econometrics, Elsevier, vol. 141(2), pages 416-459, December.
    16. repec:ebl:ecbull:v:3:y:2005:i:38:p:1-17 is not listed on IDEAS
    17. Giray Gozgor, 2013. "Testing Unemployment Persistence in Central and Eastern European Countries," International Journal of Economics and Financial Issues, Econjournals, vol. 3(3), pages 694-700.
    18. Carrion-i-Silvestre Josep Lluis & Surdeanu Laura, 2011. "Panel Cointegration Rank Testing with Cross-Section Dependence," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 15(4), pages 1-43, September.
    19. Becheri, I.G., 2012. "Limiting experiments for panel-data and jump-diffusion models," Other publications TiSEM 7e53f6cf-fab1-4f86-9e5d-b, Tilburg University, School of Economics and Management.
    20. Bai, Jushan & Carrion-i-Silvestre, Josep Lluis, 2009. "Testing Panel Cointegration with Unobservable Dynamic Common Factors," MPRA Paper 35243, University Library of Munich, Germany.
    21. Diego Romero‐Ávila, 2007. "Unit roots and persistence in the nominal interest rate: a confirmatory analysis applied to the OECD," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 40(3), pages 980-1007, August.

    More about this item

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:obuest:v:68:y:2006:i:4:p:519-540. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/sfeixuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.