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Beyond Panel Unit Root Tests: Using Multiple Testing to Determine the Non Stationarity Properties of Individual Series in a Panel

  • MOON, Hyungsik Roger
  • PERRON, Benoit

Most panel unit root tests are designed to test the joint null hypothesis of a unit root for each individual series in a panel. After a rejection, it will often be of interest to identify which series can be deemed to be stationary and which series can be deemed nonstationary. Researchers will sometimes carry out this classification on the basis of n individual (univariate) unit root tests based on some ad hoc significance level. In this paper, we demonstrate how to use the false discovery rate (FDR) in evaluating I(1)=I(0) classifications based on individual unit root tests when the size of the cross section (n) and time series (T) dimensions are large. We report results from a simulation experiment and illustrate the methods on two data sets.

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Paper provided by Universite de Montreal, Departement de sciences economiques in its series Cahiers de recherche with number 2010-04.

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Length: 43 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:mtl:montde:2010-04
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  1. Ng, Serena, 2008. "A Simple Test for Nonstationarity in Mixed Panels," Journal of Business & Economic Statistics, American Statistical Association, vol. 26, pages 113-127, January.
  2. Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
  3. Christoph Hanck, 2009. "For which countries did PPP hold? A multiple testing approach," Empirical Economics, Springer, vol. 37(1), pages 93-103, September.
  4. Moon, H.R.Hyungsik Roger & Perron, Benoit, 2004. "Testing for a unit root in panels with dynamic factors," Journal of Econometrics, Elsevier, vol. 122(1), pages 81-126, September.
  5. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
  6. Palm, Franz C. & Smeekes, Stephan & Urbain, Jean-Pierre, 2011. "Cross-sectional dependence robust block bootstrap panel unit root tests," Journal of Econometrics, Elsevier, vol. 163(1), pages 85-104, July.
  7. Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November.
  8. Claude Lopez & Christian J. Murray & David H. Papell, 2003. "State of the Art Unit Root Tests and the PPP Puzzle," Macroeconomics 0310009, EconWPA.
  9. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-36, July.
  10. Laurent Barras & Olivier Scaillet & Russ Wermers, 2010. "False Discoveries in Mutual Fund Performance: Measuring Luck in Estimated Alphas," Journal of Finance, American Finance Association, vol. 65(1), pages 179-216, 02.
  11. Donald W.K. Andrews, 1988. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Cowles Foundation Discussion Papers 877R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1989.
  12. Georgios Chortareas & George Kapetanios, 2008. "Getting PPP Right: Identifying Mean-Reverting Real Exchange Rates in Panels," Working Papers 629, Queen Mary University of London, School of Economics and Finance.
  13. G. William Schwert, 1988. "Tests For Unit Roots: A Monte Carlo Investigation," NBER Technical Working Papers 0073, National Bureau of Economic Research, Inc.
  14. John D. Storey & Jonathan E. Taylor & David Siegmund, 2004. "Strong control, conservative point estimation and simultaneous conservative consistency of false discovery rates: a unified approach," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 66(1), pages 187-205.
  15. Joseph Romano & Azeem Shaikh & Michael Wolf, 2008. "Rejoinder on: Control of the false discovery rate under dependence using the bootstrap and subsampling," TEST: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer, vol. 17(3), pages 461-471, November.
  16. Benoit Perron & Hyungsik Roger Moon, 2007. "An empirical analysis of nonstationarity in a panel of interest rates with factors," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 383-400.
  17. Joseph P. Romano & Azeem M. Shaikh & Michael Wolf, 2008. "Control of the False Discovery Rate under Dependence using the Bootstrap and Subsampling," IEW - Working Papers 337, Institute for Empirical Research in Economics - University of Zurich.
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