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A robust sign test for panel unit roots under cross sectional dependence

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  • Shin, Dong Wan
  • Park, Soo Jung
  • Oh, Man-Suk

Abstract

A robust sign test is proposed for testing unit roots in cross-sectionally dependent panel data. Large sample Gaussian null asymptotics of the test are established under (fixed N, large T) and, for serially uncorrelated error cases, under (large N, fixed T), where N is the number of panel units and T is the length of time span. The limiting null distribution is valid, even if the error processes are subject to any type of conditional heteroscedasticity. A Monte-Carlo experiment reveals that, compared with other existing tests, the proposed test has a very stable size property for wider classes of error distributions, type of conditional heteroscedasticities, type of cross-sectional correlations, and values of (N,T) while having reasonable power. Especially, for small T like T=5,10,20, the proposed test shows much stabler size performance than other existing tests. The unemployment rates of the 51 states of the USA are analyzed by the proposed method, which reveals some evidence for unit roots in the presence of factor and spatial cross-section correlation.

Suggested Citation

  • Shin, Dong Wan & Park, Soo Jung & Oh, Man-Suk, 2009. "A robust sign test for panel unit roots under cross sectional dependence," Computational Statistics & Data Analysis, Elsevier, vol. 53(4), pages 1312-1327, February.
    • Handle: RePEc:eee:csdana:v:53:y:2009:i:4:p:1312-1327
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    Cited by:

    1. Christoph Hanck & Robert Czudaj, 2013. "Nonstationary-Volatility Robust Panel Unit Root Tests and the Great Moderation," Ruhr Economic Papers 0434, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    2. repec:zbw:rwirep:0434 is not listed on IDEAS
    3. Christoph Hanck & Robert Czudaj, 2015. "Nonstationary-volatility robust panel unit root tests and the great moderation," AStA Advances in Statistical Analysis, Springer;German Statistical Society, vol. 99(2), pages 161-187, April.
    4. Shin, Dong Wan & Park, Sangun, 2010. "Robust panel unit root tests for cross-sectionally dependent multiple time series," Computational Statistics & Data Analysis, Elsevier, vol. 54(11), pages 2801-2813, November.
    5. Du, Zaichao, 2014. "Testing for serial independence of panel errors," Computational Statistics & Data Analysis, Elsevier, vol. 76(C), pages 248-261.

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