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Small sample properties of CIPS panel unit root test under conditional and unconditional heteroscedasticity

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  • HASHIGUCHI, Yoshihiro
  • HAMORI, Shigeyuki

Abstract

This paper used Monte Carlo simulations to analyze the small sample properties of cross-sectionally augmented panel unit root test (CIPS test). We considered situations involving two types of time-series heteroskedasticity (unconditional and ARCH) in the unobserved common factor and idiosyncratic error term. We found that the CIPS test could be extremely robust versus the two types of heteroskedasticity in the unobserved common factor. However, we found under-size distortion in the case of unconditional heteroskedasticity in the idiosyncratic error term, and conversely, over-size distortion in the case of ARCH. Furthermore, we observed a tendency for its over-size distortion to moderate with low volatility persistence in the ARCH process and exaggerate with high volatility persistence.

Suggested Citation

  • HASHIGUCHI, Yoshihiro & HAMORI, Shigeyuki, 2010. "Small sample properties of CIPS panel unit root test under conditional and unconditional heteroscedasticity," MPRA Paper 24053, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:24053
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    More about this item

    Keywords

    panel unit root test; CIPS test; heteroskedasticity; cross-section dependence;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics

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