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Panel Stationarity Tests with Cross-sectional Dependence

  • David Harris

    (Melbourne)

  • Steve Leybourne

    (Nottingham)

  • Brendan McCabe

    (Liverpool)

We present a test of the null hypothesis of stationarity against unit root alternatives for panel data that allows for arbitrary cross- sectional dependence. We treat the short run time series dynamics non- parametrically and thus avoid the need to fit separate models for the individual series. The statistic is simple to compute and is asymptotically normally distributed, even in the presence of a wide range of deterministic components. Taken together, these features provide a generally applicable solution to the problem of testing for stationarity versus unit roots in macro-panel based data. The test is applied to assess the validity of the purchasing power parity hypothesis and finds significant evidence against the hypothesis being true.

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File URL: http://econwpa.repec.org/eps/em/papers/0311/0311005.pdf
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Paper provided by EconWPA in its series Econometrics with number 0311005.

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Length: 21 pages
Date of creation: 17 Nov 2003
Date of revision:
Handle: RePEc:wpa:wuwpem:0311005
Note: Type of Document - ; pages: 21
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Yoosoon Chang, 2000. "Bootstrap Unit Root Tests in Panels with Cross-Sectional Dependency," Cowles Foundation Discussion Papers 1251, Cowles Foundation for Research in Economics, Yale University.
  2. Tanaka, Katsuto, 1999. "The Nonstationary Fractional Unit Root," Econometric Theory, Cambridge University Press, vol. 15(04), pages 549-582, August.
  3. 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.
  4. Harris, David & McCabe, Brendan & Leybourne, Stephen, 2003. "Some Limit Theory For Autocovariances Whose Order Depends On Sample Size," Econometric Theory, Cambridge University Press, vol. 19(05), pages 829-864, October.
  5. Cheung, Yin-Wong & Lai, Kon S., 2000. "On cross-country differences in the persistence of real exchange rates," Journal of International Economics, Elsevier, vol. 50(2), pages 375-397, April.
  6. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
  7. Papell, David H., 1997. "Searching for stationarity: Purchasing power parity under the current float," Journal of International Economics, Elsevier, vol. 43(3-4), pages 313-332, November.
  8. Kaddour Hadri, 1999. "Testing For Stationarity In Heterogeneous Panel Data," Research Papers 1999_04, University of Liverpool Management School.
  9. Oh, Keun-Yeob, 1996. "Purchasing power parity and unit root tests using panel data," Journal of International Money and Finance, Elsevier, vol. 15(3), pages 405-418, June.
  10. Yoosoon Chang & Wonho Song, 2002. "Panel Unit Root Tests in the Presence of Cross-Sectional Dependency and Heterogeneity," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 B5-2, International Conferences on Panel Data.
  11. O'Connell, Paul G. J., 1998. "The overvaluation of purchasing power parity," Journal of International Economics, Elsevier, vol. 44(1), pages 1-19, February.
  12. Choi, In, 2001. "Unit root tests for panel data," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 249-272, April.
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