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Breaking trend panel unit root tests

Author

Listed:
  • Pui Sun Tam
  • University of Macau

Abstract

This paper proposes Lagrange Multiplier based panel unit root tests allowing for structural breaks through simple extensions of existing group mean and combination tests. The proposed tests are more general than those previously suggested. They consider potential breaks in the intercept, in the slope, and both. A desirable property of the tests is their flexibility to accommodate heterogeneous break types across cross-sections in a panel. Response surfaces to approximate finite sample distributions of the underlying test statistics required to implement the panel tests are provided. The tests are analyzed for the case when the break dates are known and for the case when they are endogenously determined. A bootstrap test is further suggested to deal with cross-sectional dependency. The proposed tests are applied to two major macroeconomic variables, per capital gross domestic product and consumer prices of OECD countries

Suggested Citation

  • Pui Sun Tam & University of Macau, 2006. "Breaking trend panel unit root tests," Computing in Economics and Finance 2006 341, Society for Computational Economics.
  • Handle: RePEc:sce:scecfa:341
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    References listed on IDEAS

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    More about this item

    Keywords

    Panel unit root; structural breaks; response surface; bootstrap;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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