Second Generation Panel Unit Root Tests

Christophe Hurlin and Valérie Mignon ()

Abstract: This article proposes an overview of the recent developments relating to panel unit root tests. After a brief review of the first generation panel unit root tests, this paper focuses on the tests belonging to the second generation. The latter category of tests is characterized by the rejection of the cross-sectional independence hypothesis. Within this second generation of tests, two main approaches are distinguished. The first one relies on the factor structure approach and includes the contributions of Bai and Ng (2001), Phillips and Sul (2003a), Moon and Perron (2004a), Choi (2002) and Pesaran (2003) among others. The second approach consists in imposing few or none restrictions on the residuals covariance matrix and has been adopted notably by Chang (2002, 2004), who proposed the use of nonlinear instrumental variables methods or the use of bootstrap approaches to solve the nuisanceparameter problem due to cross-sectional dependency.

Keywords: Nonstationary panel data; unit root; heterogeneity; cross-sectional dependencies (search for similar items in EconPapers)
Date: 2007-07-04
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00159842
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