Nonparametric rank tests for non-stationary panels

Peter Pedroni, Timothy Vogelsang, Martin Wagner and Joakim Westerlund

Journal of Econometrics, 2015, vol. 185, issue 2, 378-391

Abstract: We develop a set of nonparametric rank tests for non-stationary panels based on multivariate variance ratios which use untruncated kernels. As such, the tests do not require the choice of tuning parameters associated with bandwidth or lag length and also do not require choices with respect to numbers of common factors. The tests allow for unrestricted cross-sectional dependence and dynamic heterogeneity among the units of the panel, provided simply that a joint functional central limit theorem holds for the panel of differenced series. We provide a discussion of the relationships between our setting and the settings for which first- and second generation panel unit root tests are designed. In Monte Carlo simulations we illustrate the small-sample performance of our tests when they are used as panel unit root tests under the more restrictive DGPs for which panel unit root tests are typically designed, and for more general DGPs we also compare the small-sample performance of our nonparametric tests to parametric rank tests. Finally, we provide an empirical illustration by testing for income convergence among countries.

Keywords: Cointegration; Cross-sectional dependence; Nonparametric rank tests; Time series panel; Unit roots (search for similar items in EconPapers)
JEL-codes: C12 C22 C23 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Nonparametric Rank Tests for Non-stationary Panels (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:185:y:2015:i:2:p:378-391

DOI: 10.1016/j.jeconom.2014.08.013

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