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Small sample properties of CIPS panel unit root test under conditional and unconditional heteroskedasticity

Author

Listed:
  • Shigeyuki Hamori

    () (Kobe University)

  • Yoshihiro Hashiguchi

    () (Institute of Developing Economies)

Abstract

This paper used Monte Carlo simulations to analyze the small sample properties of cross-sectionally augmented panel unit root test (CIPS test). We considered situations involving two types of time-series heteroskedasticity (unconditional and ARCH) in the unobserved common factor and idiosyncratic error term. We found that the CIPS test could be extremely robust versus the two types of heteroskedasticity in the unobserved common factor. However, we found under-size distortion in the case of unconditional heteroskedasticity in the idiosyncratic error term, and conversely, over-size distortion in the case of ARCH. Furthermore, we observed a tendency for its over-size distortion to moderate with low volatility persistence in the ARCH process and exaggerate with high volatility persistence.

Suggested Citation

  • Shigeyuki Hamori & Yoshihiro Hashiguchi, 2012. "Small sample properties of CIPS panel unit root test under conditional and unconditional heteroskedasticity," Economics Bulletin, AccessEcon, vol. 32(3), pages 2353-2365.
  • Handle: RePEc:ebl:ecbull:eb-12-00334
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    References listed on IDEAS

    as
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    Cited by:

    1. KAFANDO, Namalguebzanga, 2014. "L'industrialisation de l'Afrique: l'importance des facteurs structurels et du r├ęgime de change
      [The industrialization of Africa: the importance of structural factors and exchange rate regime]
      ," MPRA Paper 68736, University Library of Munich, Germany.
    2. Beatrice D. Simo-Kengne & Manoel Bittencourt & Rangan Gupta, 2011. "House Prices and Economic Growth in South Africa: Evidence from Provincial-Level Data," Working Papers 201116, University of Pretoria, Department of Economics.

    More about this item

    Keywords

    panel unit root test; CIPS test; heteroskedasticity; cross-section dependence;

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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