An Improved Panel Unit Root Test Using GLS-Detrending

Claude Lopez

University of Cincinnati, Economics Working Papers Series from University of Cincinnati, Department of Economics

Abstract: We propose to combine recent developments in univariate and mul- tivariate unit root testing in order to construct a more powerful panel unit root test. We extend the GLS-detrending procedure of Elliott, Rothenberg and Stock (1996) to a panel Augmented Dickey-Fuller test. The finite sample power properties of the new test demonstrate a very large gain when compared to existing tests, especially for small panels. We then investigate the topic of Purchasing Power Parity for the post Bretton-Woods period via this new test. The results show strong rejections of the unit root hypothesis.

Pages: 42 pages
Date: 2003-10
New Economics Papers: this item is included in nep-ets, nep-ifn, nep-mac and nep-rmg
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Related works:
Journal Article: A Panel Unit Root Test with Good Power in Small Samples (2009)
Working Paper: A Panel Unit Root Test with Good Power in Small Samples (2007)
Working Paper: An Improved Panel Unit Root Test Using GLS-Detrending (2003)
Working Paper: An Improved Panel Unit Root Test Using GLS-Detrending (2003)
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