Panel Stationarity Test with Structural Breaks
In this paper, we extend the heterogeneous panel data stationarity test of Hadri (2000) to the cases where breaks are taken into account. Four models with different patterns of breaks under the null hypothesis are specified. The moments of the statistics corresponding to the four models are derived in closed form via characteristic functions. We also provide the exact moments of a modified statistic that does not asymptotically depend on the location of the break point under the null hypothesis. The cases where the break point is unknown are also considered. For the model with breaks in the level and no time trend and for the model with breaks in the level and in the time trend, we can allow for the number of breaks and their positions to differ across individuals for cases with known, unknown breaks and the modified statistic. The asymptotic distributions of all the statistics proposed are derived under the null hypothesis and are shown to be normally distributed. Finally, we show by simulations that our suggested tests have good performance in finite samples.
|Date of creation:||2006|
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