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Mean Group Tests for Stationarity in Heterogeneous Panels

This paper proposes the panel-based mean group tests for the null of stationarity against the alternative of unit roots in the presence of both heterogeneity across cross-section units and serial correlation across time periods. Using both sequential and joint asymptotic analyses the proposed test statistic is shown to be distributed as standard normal under the null for large N (number of groups) and large T (number of time periods). Monte Carlo results support the use of join asymptotic limits (under further condition that N/T -> 0) as a guide to finite sample performance, but also clearly indicate that the power of our suggested panel-based test is substantially higher than that of the single time series-based test.

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Paper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 107.

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Length: 33
Date of creation: Aug 2002
Date of revision:
Handle: RePEc:edn:esedps:107
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  1. Kaddour Hadri, 2000. "Testing for stationarity in heterogeneous panel data," Econometrics Journal, Royal Economic Society, vol. 3(2), pages 148-161.
  2. Chihwa Kao & Suzanne McCoskey, 1997. "A Residual-Based Test Of The Null Of Cointegration In Panel Data," Econometrics 9711002, EconWPA.
  3. Andy Snell, . "Testing For R Versus R-1 Cointegrating Vectors," Discussion Papers 1995-10, Edinburgh School of Economics, University of Edinburgh.
  4. Quah, Danny, 1994. "Exploiting cross-section variation for unit root inference in dynamic data," Economics Letters, Elsevier, vol. 44(1-2), pages 9-19.
  5. Pesaran, M.H. & Smith, R., 1992. "Estimating Long-Run Relationships From Dynamic Heterogeneous Panels," Cambridge Working Papers in Economics 9215, Faculty of Economics, University of Cambridge.
  6. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May.
  7. Choi, In, 2001. "Unit root tests for panel data," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 249-272, April.
  8. Peter C.B.Phillips & Donggyu Sul, 2002. "Dynamic Panel Estimation and Homogeneity Testing Under Cross Section Dependence," Cowles Foundation Discussion Papers 1362, Cowles Foundation for Research in Economics, Yale University.
  9. McCabe, B.P.M. & Leybourne, S.J., 1998. "On Estimating An Arma Model With An Ma Unit Root," Econometric Theory, Cambridge University Press, vol. 14(03), pages 326-338, June.
  10. Kiviet, Jan F. & Phillips, Garry D. A., 1994. "Bias assessment and reduction in linear error-correction models," Journal of Econometrics, Elsevier, vol. 63(1), pages 215-243, July.
  11. Yongcheol Shin & Ron P Smith & Mohammad Hashem Pesaran, 1998. "Pooled Mean Group Estimation of Dynamic Heterogeneous Panels," ESE Discussion Papers 16, Edinburgh School of Economics, University of Edinburgh.
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