IDEAS home Printed from https://ideas.repec.org/a/bla/stanee/v59y2005i4p414-433.html
   My bibliography  Save this article

Panel unit root tests under cross‐sectional dependence

Author

Listed:
  • Jörg Breitung
  • Samarjit Das

Abstract

In this paper alternative approaches for testing the unit root hypothesis in panel data are considered. First, a robust version of the Dickey‐Fuller t‐statistic under contemporaneous correlated errors is suggested. Second, the GLS t‐statistic is considered, which is based on the t‐statistic of the transformed model. The asymptotic power of both tests is compared against a sequence of local alternatives. To adjust for short‐run serial correlation of the errors, we propose a pre‐whitening procedure that yields a test statistic with a standard normal limiting distribution as N and T tends to infinity. The test procedure is further generalized to accommodate individual specific intercepts or linear time trends. From our Monte Carlo simulations it turns out that the robust OLS t‐statistic performs well with respect to size and power, whereas the GLS t‐statistic may suffer from severe size distortions in small and moderate sample sizes. The tests are applied to test for a unit root in real exchange rates.

Suggested Citation

  • Jörg Breitung & Samarjit Das, 2005. "Panel unit root tests under cross‐sectional dependence," Statistica Neerlandica, Netherlands Society for Statistics and Operations Research, vol. 59(4), pages 414-433, November.
  • Handle: RePEc:bla:stanee:v:59:y:2005:i:4:p:414-433
    DOI: 10.1111/j.1467-9574.2005.00299.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1467-9574.2005.00299.x
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. 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.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

    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:stanee:v:59:y:2005:i:4:p:414-433. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley Content Delivery). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0039-0402 .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.