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Pooled panel unit root tests and the effect of past initialization

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  • Westerlund, Joakim

Abstract

This paper analyzes the role of initialization when testing for a unit root in panel data, an issue that has received surprisingly little attention in the literature. In fact, most studies assume that the initial value is either zero or bounded. As a response to this, the current paper considers a model in which the initialization is in the past, which is shown to have several distinctive features that makes it attractive, even in comparison to the common time series practice of making the initial value a draw from its unconditional distribution under the stationary alternative. The results have implications not only for theory, but also for applied work. In particular, and in contrast to the time series case, in panels the effect of the initialization need not be negative but can actually lead to improved test performance.
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Suggested Citation

  • Westerlund, Joakim, 2014. "Pooled panel unit root tests and the effect of past initialization," Working Papers fe_2014_06, Deakin University, Department of Economics.
    • Handle: RePEc:dkn:ecomet:fe_2014_06
    DOI: 10.1080/07474938.2013.833829
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    2. Artūras Juodis, 2018. "Rank based cointegration testing for dynamic panels with fixed T," Empirical Economics, Springer, vol. 55(2), pages 349-389, September.
    3. Artūras Juodis & Vasilis Sarafidis, 2023. "New results on asymptotic properties of likelihood estimators with persistent data for small and large T," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 14(3), pages 435-461, December.

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