Testing for Stationarity in Heterogeneous Panels with Serially Correlated Errors
This paper proposes panel-based tests for the null stationary against the alternative of unit roots in the presence of both heterogeneity across cross-section units and serial correlation across time periods. It is shown by the joint asymptotic approach (rather than the sequential asymptotic approach) that the proposed test statistic is distributed as standard normal under the null for large N (number of groups) and finite T (number of time periods) with the additional condition N/T -> 0. It is also shown that the test is consistent under the alternative hypothesis that the fraction of the individual processes that have unit root is non-zero. Monte Carlo results confirm that validity of the proposed test, and clearly indicate that the power of the panel-based test is substantially higher than that of the single time series-based test.
|Date of creation:||Dec 1999|
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