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Heteroskedasticity-robust unit root testing for trending panels

Helmut Herwartz, Simone Maxand and Yabibal Walle ()

No 314, Center for European, Governance and Economic Development Research Discussion Papers from University of Goettingen, Department of Economics

Abstract: Standard panel unit root tests (PURTs) are not robust to breaks in innovation variances. Consequently, recent papers have proposed PURTs that are pivotal in the presence of volatility shifts. The applicability of these tests, however, has been restricted to cases where the data contains only an intercept, and not a linear trend. This paper proposes a new heteroskedasticity-robust PURT that works well for trending data. Under the null hypothesis, the test statistic has a limiting Gaussian distribution. Simulation results reveal that the test tends to be conservative but shows remarkable power in finite samples.

Keywords: panel unit root tests; nonstationary volatility; cross-sectional dependence; near epoch dependence; energy use per capita (search for similar items in EconPapers)
JEL-codes: C23 C12 Q40 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm and nep-ets
Date: 2017
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