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A Simple Panel Stationarity Test in the Presence of Cross-Sectional Dependence

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  • Hadri, Kaddour
  • Kurozumi, Eiji

Abstract

This paper develops a simple test for the null hypothesis of stationarity in heterogeneous panel data with cross-sectional dependence in the form of a common factor in the disturbance. We do not estimate the common factor but mop-up its effect by employing the same method as the one proposed in Pesaran (2007) in the unit root testing context. Our test is basically the same as the KPSS test but the regression is augmented by cross-sectional average of the observations. We also develop a Lagrange multiplier (LM) test allowing for cross-sectional dependence and, under restrictive assumptions, compare our augmented KPSS test with the extended LM test under the null of stationarity, under the local alternative and under the fixed alternative, and discuss the differences between these two tests. We also extend our test to the more realistic case where the shocks are serially correlated. We use Monte Carlo simulations to examine the finite sample property of the augmented KPSS test.

Suggested Citation

  • Hadri, Kaddour & Kurozumi, Eiji, 2008. "A Simple Panel Stationarity Test in the Presence of Cross-Sectional Dependence," CCES Discussion Paper Series 7, Center for Research on Contemporary Economic Systems, Graduate School of Economics, Hitotsubashi University.
  • Handle: RePEc:hit:ccesdp:7
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Eiji Kurozumi & Daisuke Yamazaki & Kaddour Hadri, 2012. "Covariate Unit Root Test for Cross-Sectionally Dependent Panel Data," Global COE Hi-Stat Discussion Paper Series gd12-256, Institute of Economic Research, Hitotsubashi University.
    2. Venturini, Francesco, 2012. "Looking into the black box of Schumpeterian growth theories: An empirical assessment of R&D races," European Economic Review, Elsevier, vol. 56(8), pages 1530-1545.
    3. Christidou, Maria & Panagiotidis, Theodore & Sharma, Abhijit, 2013. "On the stationarity of per capita carbon dioxide emissions over a century," Economic Modelling, Elsevier, vol. 33(C), pages 918-925.
    4. Christidou, Maria & Panagiotidis, Theodore, 2010. "Purchasing Power Parity and the European single currency: Some new evidence," Economic Modelling, Elsevier, vol. 27(5), pages 1116-1123, September.
    5. repec:eee:rensus:v:75:y:2017:i:c:p:86-97 is not listed on IDEAS
    6. Vishal Jaunky, 2013. "Democracy and economic growth in Sub-Saharan Africa: a panel data approach," Empirical Economics, Springer, vol. 45(2), pages 987-1008, October.
    7. Vishal Jaunky, 2013. "The Wealth-Health Nexus: New Global Evidence," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 41(2), pages 115-122, June.
    8. Evangelia Papapetrou & Dimitrios Bakas, 2012. "Unemployment in Greece: evidence from Greek regions," Working Papers 146, Bank of Greece.
    9. Declan French, 2012. "Causation between health and income: a need to panic," Empirical Economics, Springer, vol. 42(2), pages 583-601, April.

    More about this item

    Keywords

    Panel data; stationarity; KPSS test; cross-sectional dependence; LM test; locally best test;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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