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New Panel Unit Root Tests under Cross Section Dependence for Practitioners

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Listed:
  • Donggyu Sul

    (University of Auckland)

Abstract

This paper studies the principle of common recursive mean adjustment and proposes a new detrending method in dynamic panel models. By utilizing recursive mean adjustment, this paper provides three unit root tests: a recursive mean adjusted (RMA) unit root test, a covariate RMA and a pooled RMA-feasible generalized least squares tests. The first two tests are designed for testing the cross sectional average of panel time series data to examine if the common factors in a panel are stationary or not. The third test is designed to test if the idiosyncratic errors are stationary or not. The proposed panel unit root test under cross section dependence is precise and powerful especially when T is larger than N

Suggested Citation

  • Donggyu Sul, 2005. "New Panel Unit Root Tests under Cross Section Dependence for Practitioners," Econometrics 0506010, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpem:0506010
    Note: Type of Document - pdf; pages: 37
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    References listed on IDEAS

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    11. Donggyu Sul & Peter C. B. Phillips & Chi‐Young Choi, 2005. "Prewhitening Bias in HAC Estimation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(4), pages 517-546, August.
    12. Hansen, Bruce E., 1995. "Rethinking the Univariate Approach to Unit Root Testing: Using Covariates to Increase Power," Econometric Theory, Cambridge University Press, vol. 11(5), pages 1148-1171, October.
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    More about this item

    Keywords

    recursive detrending; panel unit root tests; cross section dependence;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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