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A Panel Unit Root Test with Good Power in Small Samples

Claude Lopez

Econometric Reviews, 2009, vol. 28, issue 4, 295-313

Abstract: We propose a new pooled panel unit root test allowing for serial and contemporaneous correlation. The test combines Elliott et al. (1996) local-to-unity transformation with a pooled panel ADF test, and accounts for contemporaneous correlation by estimating the residual covariance matrix. The critical values are bootstrapped and Monte Carlo simulations demonstrate enhanced performances, especially when the series are highly persistent and the panel cross-sectional and time series dimensions are relatively small. An application of the test to the real exchange rate convergence for the post Bretton-Woods period leads to strong and reliable rejections of the unit root.

Keywords: Bootstrap test; GLS-detrending; Panel unit root test (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (8)

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Related works:
Working Paper: A Panel Unit Root Test with Good Power in Small Samples (2007) Downloads
Working Paper: An Improved Panel Unit Root Test Using GLS-Detrending (2003) Downloads
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DOI: 10.1080/07474930802458620

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