Breaking trend panel unit root tests

Pui Sun Tam and University of Macau

No 341, Computing in Economics and Finance 2006 from Society for Computational Economics

Abstract: This paper proposes Lagrange Multiplier based panel unit root tests allowing for structural breaks through simple extensions of existing group mean and combination tests. The proposed tests are more general than those previously suggested. They consider potential breaks in the intercept, in the slope, and both. A desirable property of the tests is their flexibility to accommodate heterogeneous break types across cross-sections in a panel. Response surfaces to approximate finite sample distributions of the underlying test statistics required to implement the panel tests are provided. The tests are analyzed for the case when the break dates are known and for the case when they are endogenously determined. A bootstrap test is further suggested to deal with cross-sectional dependency. The proposed tests are applied to two major macroeconomic variables, per capital gross domestic product and consumer prices of OECD countries

Keywords: Panel unit root; structural breaks; response surface; bootstrap (search for similar items in EconPapers)
JEL-codes: C12 C15 C23 (search for similar items in EconPapers)
Date: 2006-07-04
New Economics Papers: this item is included in nep-ecm and nep-ets
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