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Cross-section Dependency and the Effects of Nonlinearity in Panel Unit Testing

Author

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  • Furkan Emirmahmutoðlu

    (Gazi University, Department of Econometrics)

Abstract

In this study, we have analyzed the Cross Section Dependence (CSD) problem that is frequently encountered in a panel unit root setting by using the Pesaran (2004, 2008) CD tests. For this purpose we have generated cross sectionally dependent data and investigated the effects of nonlinear modeling on the cross section dependency problem inherited in panel analysis. The simulation study shows us that the nonlinear models remedy some part of this CSD.

Suggested Citation

  • Furkan Emirmahmutoðlu, 2014. "Cross-section Dependency and the Effects of Nonlinearity in Panel Unit Testing," Econometrics Letters, Bilimsel Mektuplar Organizasyonu (Scientific letters), vol. 1(1), pages 30-36.
  • Handle: RePEc:bmo:bmoart:v:1:y:2014:i:1:p:30-36
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    References listed on IDEAS

    as
    1. Omay, Tolga & Öznur Kan, Elif, 2010. "Re-examining the threshold effects in the inflation-growth nexus with cross-sectionally dependent non-linear panel: Evidence from six industrialized economies," Economic Modelling, Elsevier, vol. 27(5), pages 996-1005, September.
    2. Pesaran, M. Hashem, 2004. "General Diagnostic Tests for Cross Section Dependence in Panels," IZA Discussion Papers 1240, Institute for the Study of Labor (IZA).
    3. 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.
    4. Ucar, Nuri & Omay, Tolga, 2009. "Testing for unit root in nonlinear heterogeneous panels," Economics Letters, Elsevier, vol. 104(1), pages 5-8, July.
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    Cited by:

    1. Reneé van Eyden & Tolga Omay & Rangan Gupta, 2015. "Inflation-Growth Nexus in Africa: Evidence from a Pooled CCE Multiple Regime Panel Smooth Transition Model," Working Papers 201504, University of Pretoria, Department of Economics.

    More about this item

    Keywords

    Panel Unit Root; Cross Section Dependency Bias; Cross Section Dependency Test.;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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