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

Josep Carrion-i-Silvestre, Tomás del Barrio-Castro () and Enrique Lopez-Bazo
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Tomás del Barrio-Castro: Departament d'Econometria, Estadística i Economia Espanyola, Universitat de Barcelona, Postal: Avd. Diagonal, 690. 08034 Barcelona. Spain
Authors registered in the RePEc Author Service: Tomás del Barrio Castro

No C5-2, 10th International Conference on Panel Data, Berlin, July 5-6, 2002 from International Conferences on Panel Data

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.

Date: 2002-03
New Economics Papers: this item is included in nep-ecm and nep-ets
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Citations: View citations in EconPapers (16)

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Working Paper: Level shifts in a panel data based unit root test. An application to the rate of unemployment (2002)
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