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PANIC Approach

In: Convergence in Output and Its Sources Among Industrialised Countries

Author

Listed:
  • Macarena Hernández-Salmerón

    (Regional Government of Andalusia)

  • Diego Romero-Ávila

    (Pablo de Olavide University)

Abstract

This chapter presents the main advantages of the PANIC approach versus other panel unit root and stationarity tests. First, PANIC enables us to allow for strong forms of cross-sectional dependence in the data such as cross-cointegration. Second, it allows us to decompose the observed series into a common and an idiosyncratic component, as well as to determine the source of nonstationarity in the observed series, that is, whether it stems from the common factor(s) and/or the idiosyncratic components. Third, unlike other factor-based panel unit root tests, PANIC is flexible enough as to allow for a different order of integration in both components. Fourth, PANIC acts as a cointegration framework that can be applied to the log of the respective series, thereby enabling us to relax the homogeneity assumption previously imposed when focusing on relative series.

Suggested Citation

  • Macarena Hernández-Salmerón & Diego Romero-Ávila, 2015. "PANIC Approach," SpringerBriefs in Economics, in: Convergence in Output and Its Sources Among Industrialised Countries, edition 127, chapter 0, pages 45-51, Springer.
    • Handle: RePEc:spr:spbchp:978-3-319-13635-6_5
    DOI: 10.1007/978-3-319-13635-6_5
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