A Nonlinear Panel Unit Root Test under Cross Section Dependence

Mario Cerrato, Christian de Peretti, Rolf Larsson and Nick Sarantis

Working Papers from Business School - Economics, University of Glasgow

Abstract: We propose a nonlinear heterogeneous panel unit root test for testing the null hypothesis of unit-roots processes against the alternative that allows a proportion of units to be generated by globally stationary ESTAR processes and a remaining non-zero proportion to be generated by unit root processes. The proposed test is simple to implement and accommodates cross sectional dependence. We show that the distribution of the test statistic is free of nuisance parameters as (N, T) −∞. Monte Carlo simulation shows that our test holds correct size and under the hypothesis that data are generated by globally stationary ESTAR processes has a better power than the recent test proposed in Pesaran [2007]. An application to a panel of bilateral real exchange rate series with the US Dollar from the 20 major OECD countries is provided.

Keywords: Nonlinear panel unit root tests; cross sectional dependence. (search for similar items in EconPapers)
JEL-codes: C12 C15 C22 C23 F31 (search for similar items in EconPapers)
Date: 2009-07
New Economics Papers: this item is included in nep-ecm and nep-ets
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Related works:
Working Paper: A Nonlinear Panel Unit Root Test under Cross Section Dependence (2011)
Working Paper: A nonlinear panel unit root test under cross section dependence (2011)
Working Paper: A Nonlinear Panel Unit Root Test under Cross Section Dependence (2008)
Working Paper: A nonlinear panel unit root test under cross section dependence (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:gla:glaewp:2009_28

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