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Bootstrap Sequential Tests to Determine the Stationary Units in a Panel

  • Smeekes Stephan

    (METEOR)

We propose an approach to investigate the stationarity properties of individual units in a panel based on testing user-defined increasing proportions of hypothesized stationary units sequentially. Asymptotically valid critical values are obtained using the block bootstrap. This sequential approach has an advantage over multiple testing approaches, in particular if N is large and T is small, as it can exploit the cross-sectional dimension, which the multiple testing approaches cannot do effectively. A simulation study is conducted to analyze the relative performance of the approach in comparison with multiple testing approaches. The method is also illustrated by two empirical applications, in testing for unit roots in real exchange rates and log earnings data of households. The simulation study and applications demonstrate the usefulness of our method, in particular in panels with large N and small T.

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Paper provided by Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR) in its series Research Memorandum with number 003.

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Date of creation: 2011
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Handle: RePEc:unm:umamet:2011003
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  1. Efstathios Paparoditis & Dimitris N. Politis, 2003. "Residual-Based Block Bootstrap for Unit Root Testing," Econometrica, Econometric Society, vol. 71(3), pages 813-855, 05.
  2. Andrews, Donald W K, 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, Econometric Society, vol. 59(3), pages 817-58, May.
  3. Perron, Pierre & Qu, Zhongjun, 2007. "A simple modification to improve the finite sample properties of Ng and Perron's unit root tests," Economics Letters, Elsevier, vol. 94(1), pages 12-19, January.
  4. 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.
  5. Moon, H.R. & Perron, B., 2012. "Beyond panel unit root tests: Using multiple testing to determine the nonstationarity properties of individual series in a panel," Journal of Econometrics, Elsevier, vol. 169(1), pages 29-33.
  6. Meghir, Costas & Pistaferri, Luigi, 2002. "Income Variance Dynamics and Heterogeneity," CEPR Discussion Papers 3632, C.E.P.R. Discussion Papers.
  7. Westerlund, Joakim & Breitung, Jörg, 2009. "Myths and Facts about Panel Unit Root Tests," Working Papers in Economics 380, University of Gothenburg, Department of Economics.
  8. Palm Franz C. & Smeekes Stephan & Urbain Jean-Pierre, 2008. "Cross-Sectional Dependence Robust Block Bootstrap Panel Unit Root Tests," Research Memorandum 048, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  9. Romano, Joseph P. & Shaikh, Azeem M. & Wolf, Michael, 2008. "Formalized Data Snooping Based On Generalized Error Rates," Econometric Theory, Cambridge University Press, vol. 24(02), pages 404-447, April.
  10. Joseph P. Romano & Michael Wolf, 2003. "Stepwise Multiple Testing as Formalized Data Snooping," Working Papers 17, Barcelona Graduate School of Economics.
  11. 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.
  12. Deckers, Thomas & Hanck, Christoph, 2009. "Multiple Testing Techniques in Growth Econometrics," MPRA Paper 17843, University Library of Munich, Germany.
  13. Halbert White, 2000. "A Reality Check for Data Snooping," Econometrica, Econometric Society, vol. 68(5), pages 1097-1126, September.
  14. 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.
  15. 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.
  16. 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.
  17. Alan M. Taylor, 2000. "A Century of Purchasing-Power Parity," NBER Working Papers 8012, National Bureau of Economic Research, Inc.
  18. George Kapetanios, 2003. "Determining the Stationarity Properties of Individual Series in Panel Datasets," Working Papers 495, Queen Mary University of London, School of Economics and Finance.
  19. Stephan Smeekes & A. M. Robert Taylor, 2010. "Bootstrap union tests for unit roots in the presence of nonstationary volatility," Discussion Papers 10/03, University of Nottingham, Granger Centre for Time Series Econometrics.
  20. Harvey, David I. & Leybourne, Stephen J. & Taylor, A.M. Robert, 2009. "Unit Root Testing In Practice: Dealing With Uncertainty Over The Trend And Initial Condition," Econometric Theory, Cambridge University Press, vol. 25(03), pages 587-636, June.
  21. Martin Wagner, 2008. "On PPP, unit roots and panels," Empirical Economics, Springer, vol. 35(2), pages 229-249, September.
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