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Testing for nonlinear panel unit roots under cross-sectional dependency — With an application to the PPP hypothesis

  • Månsson, Kristofer
  • Sjölander, Pär
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    In this paper we propose a number of nonlinear panel unit root tests that are robust to cross-sectional dependency. These tests may be used to test the null hypothesis of non-stationarity against the alternative that some or all of the time series in the system of equations follow a stationary exponential smooth transition autoregressive (ESTAR) process. In contrast to previous research we relax the assumption that the cross-correlation structure is driven by a common-factor and consider an endogenous correlation structure. Based on the size and power results from the Monte Carlo simulations we recommend using the Wald version of our cross-sectional dependent robust nonlinear panel unit root (CDR-NPU) method.

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    Article provided by Elsevier in its journal Economic Modelling.

    Volume (Year): 38 (2014)
    Issue (Month): C ()
    Pages: 121-132

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    Handle: RePEc:eee:ecmode:v:38:y:2014:i:c:p:121-132
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