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Testing for stationarity in heterogeneous panel data where the time dimension is finite

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  • Kaddour Hadri
  • Rolf Larsson

Abstract

and hence makes the test valid for any (T, N) combination. The asymptotic distributions of the tests are derived under the null and are shown to be normally distributed. Their moments for T fixed are derived analytically using Ghazal's (1994, Statistics and Probability letters 20, 313--319) 1 lemma 1. Finite sample size and power are considered in a Monte Carlo experiment. The proposed tests have empirical sizes that are very close to the nominal 5% level. The Monte Carlo results clearly show that the power of the test statistics increases substantially with N, T and ω (ω being the number of unit root processes under the alternative). The results indicate that the assumption that T is asymptotic rather than fixed leads to tests that are substantially oversized particularly for relatively short panels with large N. Copyright 2005 Royal Economic Society

Suggested Citation

  • Kaddour Hadri & Rolf Larsson, 2005. "Testing for stationarity in heterogeneous panel data where the time dimension is finite," Econometrics Journal, Royal Economic Society, vol. 8(1), pages 55-69, March.
    • Handle: RePEc:ect:emjrnl:v:8:y:2005:i:1:p:55-69
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