A simple panel unit root test in the presence of cross-section dependence
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In this paper, a simple alternative where the standard ADF regressions are augmented with the cross section averages of lagged levels and first-differences of the individual series is proposed, and it is shown that the individual CADF statistics are asymptotically similar and do not depend on the factor loadings.Abstract:
A number of panel unit root tests that allow for cross section dependence have been proposed in the literature that use orthogonalization type procedures to asymptotically eliminate the cross dependence of the series before standard panel unit root tests are applied to the transformed series. In this paper we propose a simple alternative where the standard ADF regressions are augmented with the cross section averages of lagged levels and first-differences of the individual series. New asymptotic results are obtained both for the individual CADF statistics, and their simple averages. It is shown that the individual CADF statistics are asymptotically similar and do not depend on the factor loadings. The limit distribution of the average CADF statistic is shown to exist and its critical values are tabulated. Small sample properties of the proposed test are investigated by Monte Carlo experiments. The proposed test is applied to a panel of 17 OECD real exchange rate series as well as to log real earnings of households in the PSID data.read more
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References
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Journal ArticleDOI
A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test
G. S. Maddala,Shaowen Wu +1 more
TL;DR: The Im-Pesaran-Shin (IPS) test as discussed by the authors relaxes the restrictive assumption of the LL test and is best viewed as a test for summarizing the evidence from independent tests of the sample hypothesis.
Posted Content
General Diagnostic Tests for Cross Section Dependence in Panels
TL;DR: In this paper, the authors proposed simple tests of error cross section dependence which are applicable to a variety of panel data models, including stationary and unit root dynamic heterogeneous panels with short T and large N.
Book
Introduction to Statistical Time Series
TL;DR: In this paper, Fourier analysis is used to estimate the mean and autocorrelations of the Fourier spectral properties of a Fourier wavelet and the estimated spectrum of the wavelet.
ReportDOI
Efficient Tests for an Autoregressive Unit Root
TL;DR: In this paper, a modified version of the Dickey-Fuller t test is proposed to improve the power when an unknown mean or trend is present, and a Monte Carlo experiment indicates that the modified test works well in small samples.
Journal ArticleDOI
Unit root tests for panel data
TL;DR: In this paper, the authors developed unit root tests for panel data under more general assumptions than the tests previously proposed, such as the number of groups in the panel data is assumed to be either finite or infinite.
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