Pooled Unit Root Tests in Panels with a Common Factor

No 2005:9, Working Papers from Lund University, Department of Economics

Abstract: This paper proposes new pooled panel unit root tests that are appropriate when the data exhibit cross-sectional dependence that is generated by a single common factor. Using sequential limit arguments, we show that the tests have a limiting normal distribution that is free of nuisance parameters and that they are unbiased against heterogenous local alternatives. Our Monte Carlo results indicate that the tests perform well in comparison to other popular tests that also presumes a common factor structure for the cross-sectional dependence.

Keywords: Pooled Unit Root Tests; Panel Data; Common Factor; Cross-Sectional Dependence; Monte Carlo Simulation. (search for similar items in EconPapers)
JEL-codes: C12 C31 C33 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2005-01-26
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 (1)

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