On The Panel Unit Root Tests Using Nonlinear Instrumental Variables
This paper re-examines the panel unit root tests proposed by Chang (2002). She establishes asymptotic independence of the t-statistics when integrable functions of lagged dependent variable are used as instruments even if the original series are cross sectionally dependent. She claims that her non-linear instrumental variable (NIV) panel unit root test is valid under general error cross correlations for any N (the cross section dimension) as T (the time dimension of the panel) tends to infinity. These results are largely due to her particular choice of the error correlation matrix which results in weak cross section dependence. Also, the asymptotic independence property of the t- statistics disappears when Chang's modified instruments are used. Using a common factor model with a sizeable degree of cross section correlations, we show that Chang's NIV panel unit root test suffers from gross size distortions, even when N is small relative to T.
|Date of creation:||Oct 2003|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.econ.cam.ac.uk/index.htm|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003.
"Testing for unit roots in heterogeneous panels,"
Journal of Econometrics,
Elsevier, vol. 115(1), pages 53-74, July.
- Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
- Tom Doan, . "IPSHIN: RATS procedure to implement Im, Pesaran and Shin panel unit root test," Statistical Software Components RTS00098, Boston College Department of Economics.
- Park, Joon Y. & Phillips, Peter C.B., 1999.
"Asymptotics For Nonlinear Transformations Of Integrated Time Series,"
Cambridge University Press, vol. 15(03), pages 269-298, June.
- Peter C.B. Phillips & Joon Y. Park, 1998. "Asymptotics for Nonlinear Transformations of Integrated Time Series," Cowles Foundation Discussion Papers 1182, Cowles Foundation for Research in Economics, Yale University.
- Hyungsik Roger MOON & Benoit PERRON, 2002.
"Testing For A Unit Root In Panels With Dynamic Factors,"
Cahiers de recherche
18-2002, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- Moon, H.R.Hyungsik Roger & Perron, Benoit, 2004. "Testing for a unit root in panels with dynamic factors," Journal of Econometrics, Elsevier, vol. 122(1), pages 81-126, September.
- MOON, Hyungsik Roger & PERRON, Benoit., 2002. "Testing for a Unit Root in Panels with Dynamic Factors," Cahiers de recherche 2002-18, Universite de Montreal, Departement de sciences economiques.
- Park, Joon Y & Phillips, Peter C B, 2001.
"Nonlinear Regressions with Integrated Time Series,"
Econometric Society, vol. 69(1), pages 117-61, January.
- Joon Y. Park & Peter C.B. Phillips, 1998. "Nonlinear Regressions with Integrated Time Series," Cowles Foundation Discussion Papers 1190, Cowles Foundation for Research in Economics, Yale University.
- Joon Y. Park & Peter C. B. Phillips, 1999. "Nonlinear Regressions with Integrated Time Series," Working Paper Series no6, Institute of Economic Research, Seoul National University.
- Yoosoon Chang & Joon Y. Park & Peter C.B. Phillips, 1999.
"Nonlinear Econometric Models with Cointegrated and Deterministically Trending Regressors,"
Cowles Foundation Discussion Papers
1245, Cowles Foundation for Research in Economics, Yale University.
- Yoosoon Chang & Joon Y. Park & Peter C. B. Phillips, 2001. "Nonlinear econometric models with cointegrated and deterministically trending regressors," Econometrics Journal, Royal Economic Society, vol. 4(1), pages 1-36.
When requesting a correction, please mention this item's handle: RePEc:cam:camdae:0347. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jake Dyer)
If references are entirely missing, you can add them using this form.