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Panel root tests and the impact of initial observations

Author

Listed:
  • David I. Harvey
  • Stephen J. Leybourne
  • Nikolaos D. Sakkas

Abstract

In this paper we show that panel unit root tests based on OLS detrending have inferior power relative to tests based on GLS detrending when the deviations of the initial observations from the deterministic components of the series are small. This ranking, however, is reversed for larger deviations. We propose a hybrid panel unit root test that captures the desirable power features of both approaches across the range of initial conditions.

Suggested Citation

  • David I. Harvey & Stephen J. Leybourne & Nikolaos D. Sakkas, 2008. "Panel root tests and the impact of initial observations," Discussion Papers 06/02, University of Nottingham, Granger Centre for Time Series Econometrics.
    • Handle: RePEc:not:notgts:06/02
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    File URL: https://www.nottingham.ac.uk/research/groups/grangercentre/documents/08-02.pdf
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    References listed on IDEAS

    as
    1. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    2. László Mátyás & Patrick Sevestre (ed.), 2008. "The Econometrics of Panel Data," Advanced Studies in Theoretical and Applied Econometrics, Springer, number 978-3-540-75892-1, July-Dece.
    3. Patrick Sevestre & Laszlo Matyas, 2008. "The Econometrics of Panel Data," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00279977, HAL.
    4. Ulrich K. M¸ller & Graham Elliott, 2003. "Tests for Unit Roots and the Initial Condition," Econometrica, Econometric Society, vol. 71(4), pages 1269-1286, July.
    5. Evans, G B A & Savin, N E, 1981. "Testing for Unit Roots: 1," Econometrica, Econometric Society, vol. 49(3), pages 753-779, May.
    6. David I. Harvey & Stephen J. Leybourne, 2005. "On testing for unit roots and the initial observation," Econometrics Journal, Royal Economic Society, vol. 8(1), pages 97-111, March.
    Full references (including those not matched with items on IDEAS)

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