PANIC Approach

Macarena Hernández-Salmerón () and Diego Romero-Ávila ()
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Macarena Hernández-Salmerón: Regional Government of Andalusia
Diego Romero-Ávila: Pablo de Olavide University

Chapter Chapter 5 in Convergence in Output and Its Sources Among Industrialised Countries, 2015, pp 45-51 from Springer

Abstract: Abstract This chapter presents the main advantages of the PANIC approach versus other panel unit root and stationarity tests. First, PANIC enables us to allow for strong forms of cross-sectional dependence in the data such as cross-cointegration. Second, it allows us to decompose the observed series into a common and an idiosyncratic component, as well as to determine the source of nonstationarity in the observed series, that is, whether it stems from the common factor(s) and/or the idiosyncratic components. Third, unlike other factor-based panel unit root tests, PANIC is flexible enough as to allow for a different order of integration in both components. Fourth, PANIC acts as a cointegration framework that can be applied to the log of the respective series, thereby enabling us to relax the homogeneity assumption previously imposed when focusing on relative series.

Keywords: Time series convergence; PANIC; Cointegration (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1007/978-3-319-13635-6_5

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