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Some cautions on the use of nonlinear panel unit root tests: Evidence from a modified series-specific non-linear panel unit-root test

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  • Lau, Chi Keung Marco
  • Suvankulov, Farrukh
  • Su, Yongyang
  • Chau, Frankie

Abstract

The purpose of this paper is to examine the relevance of applying nonlinear panel unit root test to examine the non-linear mean reversion behaviors of real exchange rates. We find that nonlinear panel unit root test may achieve lower power performance as compared to its alternative of linear panel unit test when the data generating process does not contain significant non-linear components. This finding post cautions to researchers in modeling and testing real exchanges behavior. We also develop a modified series-specific nonlinear panel unit root test and find evidence in favor of purchasing power parity hypothesis for China's four ASEAN trading partners in the period of February 1997 to August 2009.

Suggested Citation

  • Lau, Chi Keung Marco & Suvankulov, Farrukh & Su, Yongyang & Chau, Frankie, 2012. "Some cautions on the use of nonlinear panel unit root tests: Evidence from a modified series-specific non-linear panel unit-root test," Economic Modelling, Elsevier, vol. 29(3), pages 810-816.
  • Handle: RePEc:eee:ecmode:v:29:y:2012:i:3:p:810-816
    DOI: 10.1016/j.econmod.2011.08.006
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:enepol:v:114:y:2018:i:c:p:519-528 is not listed on IDEAS
    2. Mulatu F. Zehirun & Marthinus C. Breitenbach & Francis M. Kemegue, 2015. "Assessment of Monetary Union in SADC: Evidence from Cointegration and Panel Unit Root Tests," Working Papers 201502, University of Pretoria, Department of Economics.
    3. repec:bla:pacecr:v:22:y:2017:i:4:p:510-532 is not listed on IDEAS
    4. Marco Lau & Yongyang Su & Na Tan & Zhe Zhang, 2014. "Hedging China’s energy oil market risks," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 4(1), pages 99-112, June.
    5. repec:spr:pharme:v:4:y:2014:i:1:p:99-112 is not listed on IDEAS
    6. Apergis, Nicholas & Lau, Marco Chi Keung, 2015. "Structural breaks and electricity prices: Further evidence on the role of climate policy uncertainties in the Australian electricity market," Energy Economics, Elsevier, vol. 52(PA), pages 176-182.

    More about this item

    Keywords

    Monte Carlo Simulation; Panel non-linear panel unit root test; Real exchange rate; ASEAN countries;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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