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LM Unit Root Test with Panel Data: A Test Robust To Structural Changes

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Listed:
  • Kyung So Im

    (Wichita State University)

  • Junsoo Lee

    (University of Central Florida)

Abstract

This paper proposes an LM test for the unit root hypothesis using panel data. The LM statistic based on the pooled likelihood function is obtained by standardizing the average of the LM statistic for individual time series. Under the null hypothesis, the statistic follows the standard normal distribution in the limit as N, T goes to infinity as long as N/T approaches any finite number, regardless of whether structural breaks are present. According to the Monte Carlo simulation results, the LM test is robust to the presence of structural breaks, and is more powerful than the popular test proposed by Im, Pesaran and Shin (1997) in the benchmark case where no structural breaks are involved.

Suggested Citation

  • Kyung So Im & Junsoo Lee, 2000. "LM Unit Root Test with Panel Data: A Test Robust To Structural Changes," Econometric Society World Congress 2000 Contributed Papers 0648, Econometric Society.
  • Handle: RePEc:ecm:wc2000:0648
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    References listed on IDEAS

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    1. Ng, S. & Perron, P., 1994. "Unit Root Tests ARMA Models with Data Dependent Methods for the Selection of the Truncation Lag," Cahiers de recherche 9423, Universite de Montreal, Departement de sciences economiques.
    2. Perron, Pierre, 1997. "Further evidence on breaking trend functions in macroeconomic variables," Journal of Econometrics, Elsevier, vol. 80(2), pages 355-385, October.
    3. Amsler, Christine & Lee, Junsoo, 1995. "An LM Test for a Unit Root in the Presence of a Structural Change," Econometric Theory, Cambridge University Press, vol. 11(02), pages 359-368, February.
    4. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
    5. repec:cup:etheor:v:11:y:1995:i:2:p:359-68 is not listed on IDEAS
    6. 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.
    7. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
    8. Schmidt, Peter & Phillips, C B Peter, 1992. "LM Tests for a Unit Root in the Presence of Deterministic Trends," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 257-287, August.
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