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Some Cautions on the Use of the LLC Panel Unit Root Test

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  • Westerlund Joakim

    (METEOR)

Abstract

One of the single most cited studies within the field of nonstationary panel data analysis is that of LLC (Levin, Lin and Chu, 2002. Unit Root\linebreak Tests in Panel Data: Asymptotic and Finite Sample Properties. \emph{Journal of Econometrics} 98, 1-24), in which the authors propose a test for a common unit root in the panel. Using both theoretical arguments and simulation evidence, we show that this test generally suffers from serious bias when combined with most commonly used rules for lag length and bandwidth selection. To remedy this bias effect, we propose a slightly modified test that performs well in small samples and that is computationally more convenient than the LLC test.

Suggested Citation

  • Westerlund Joakim, 2006. "Some Cautions on the Use of the LLC Panel Unit Root Test," Research Memorandum 055, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  • Handle: RePEc:unm:umamet:2006055
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    References listed on IDEAS

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    1. John Y. Campbell & Pierre Perron, 1991. "Pitfalls and Opportunities: What Macroeconomists Should Know About Unit Roots," NBER Chapters,in: NBER Macroeconomics Annual 1991, Volume 6, pages 141-220 National Bureau of Economic Research, Inc.
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    Cited by:

    1. Jisun Kim & Tugrul Daim, 2014. "A new approach to measuring time-lags in technology licensing: study of U.S. academic research institutions," The Journal of Technology Transfer, Springer, vol. 39(5), pages 748-773, October.

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