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An Improved Panel Unit Root Test Using GLS-Detrending

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  • Claude Lopez

    (University of Cincinnati)

Abstract

We propose to combine recent developments in univariate and mul- tivariate unit root testing in order to construct a more powerful panel unit root test. We extend the GLS-detrending procedure of Elliott, Rothenberg and Stock (1996) to a panel Augmented Dickey-Fuller test. The .nite sample power properties of the new test demonstrate a very large gain when compared to existing tests, especially for small panels. We then investigate the topic of Purchasing Power Parity for the post Bretton-Woods period via this new test. The results show strong rejections of the unit root hypothesis.

Suggested Citation

  • Claude Lopez, 2003. "An Improved Panel Unit Root Test Using GLS-Detrending," Econometrics 0310006, EconWPA, revised 24 Oct 2003.
  • Handle: RePEc:wpa:wuwpem:0310006 Note: Type of Document - pdf; prepared on XP; pages: 43
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    References listed on IDEAS

    as
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    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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    Cited by:

    1. Jean françois Hoarau & Claude Lopez & Michel Paul, 2010. "Short Note on the Unemployment Rate of the “French overseas regions”," Economics Bulletin, AccessEcon, vol. 30(3), pages 2321-2329.
    2. Lopez, Claude & Papell, David H., 2012. "Convergence of Euro area inflation rates," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1440-1458.
    3. Giray GOZGOR, 2013. "Unemployment Persistence and Inflation Convergence: Evidence from Regions of Turkey," Regional and Sectoral Economic Studies, Euro-American Association of Economic Development, vol. 13(1), pages 55-64.
    4. Lopez, Claude, 2008. "Evidence of purchasing power parity for the floating regime period," Journal of International Money and Finance, Elsevier, vol. 27(1), pages 156-164, February.
    5. Kanas, Angelos, 2006. "Purchasing Power Parity and Markov Regime Switching," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(6), pages 1669-1687, September.
    6. Jacques Bughin, 2015. "Google searches and twitter mood: nowcasting telecom sales performance," Netnomics, Springer, vol. 16(1), pages 87-105, August.
    7. Joakim Westerlund & Jörg Breitung, 2013. "Lessons from a Decade of IPS and LLC," Econometric Reviews, Taylor & Francis Journals, vol. 32(5-6), pages 547-591, August.
    8. Skrobotov, Anton & Turuntseva, Marina, 2017. "Testing the Hypothesis of a Unit Root for Independent Panels," Working Papers 021707, Russian Presidential Academy of National Economy and Public Administration.
    9. Vajanne, Laura, 2007. "Integration in euro area retail banking markets : convergence of credit interest rates," Research Discussion Papers 27/2007, Bank of Finland.
    10. Cushman, David O. & Michael, Nils, 2011. "Nonlinear trends in real exchange rates: A panel unit root test approach," Journal of International Money and Finance, Elsevier, vol. 30(8), pages 1619-1637.

    More about this item

    Keywords

    DF-GLS; panel unit root;

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs

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