Level shifts in a panel data based unit root test. An application to the rate of unemployment

Josep Lluis Carrion Silvestre, Tomás del Barrio Castro and Enrique Lopez-Bazo

No 79, Working Papers in Economics from Universitat de Barcelona. Espai de Recerca en Economia

Abstract: Several unit root tests in panel data have recently been proposed. The test developed by Harris and Tzavalis (1999 JoE) performs particularly well when the time dimension is moderate in relation to the cross-section dimension. However, in common with the traditional tests designed for the unidimensional case, it was found to perform poorly when there is a structural break in the time series under the alternative. Here we derive the asymptotic distribution of the test allowing for a shift in the mean, and assess the small sample performance. We apply this new test to show how the hypothesis of (perfect) hysteresis in Spanish unemployment is rejected in favour of the alternative of the natural unemployment rate, when the possibility of a change in the latter is considered.

JEL-codes: C12 C22 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2002
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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