TY - JOUR

T1 - Double unit root tests for cross-sectionally dependent panel data

AU - Shin, Dong Wan

AU - Jung, Yoon Young

AU - Oh, Man Suk

PY - 2008

Y1 - 2008

N2 - This paper proposes various double unit root tests for cross-sectionally dependent panel data. The cross-sectional correlation is handled by the projection method [P.C.B. Phillips and D. Sul, Dynamic panel estimation and homogeneity testing under cross section dependence, Econom. J. 6 (2003), pp. 217-259; H.R. Moon and B. Perron, Testing for a unit root in panels with dynamic factors, J. Econom. 122 (2004), pp. 81-126] or the subtraction method [J. Bai and S. Ng, A PANIC attack on unit roots and cointegration, Econometrica 72 (2004), pp. 1127-1177]. Pooling or averaging is applied to combine results from different panel units. Also, to estimate autoregressive parameters the ordinary least squares estimation [D.P. Hasza and W.A. Fuller, Estimation for autoregressive processes with unit roots, Ann. Stat. 7 (1979), pp. 1106-1120] or the symmetric estimation [D.L. Sen and D.A. Dickey, Symmetric test for second differencing in univariate time series, J. Bus. Econ. Stat. 5 (1987), pp. 463-473] are used, and to adjust mean functions the ordinary mean adjustment or the recursive mean adjustment are used. Combinations of different methods in defactoring to eliminate the cross-sectional dependency, integrating results from panel units, estimating the parameters, and adjusting mean functions yields various available tests for double unit roots in panel data. Simple asymptotic distributions of the proposed test statistics are derived, which can be used to find critical values of the test statistics. We perform a Monte Carlo experiment to compare the performance of these tests and to suggest optimal tests for a given panel data. Application of the proposed tests to a real data, the yearly export panel data sets of several Latin-American countries for the past 50 years, illustrates the usefulness of the proposed tests for panel data, in that they reveal stronger evidence of double unit roots than the componentwise double unit root tests of Hasza and Fuller [Estimation for autoregressive processes with unit roots, Ann. Stat. 7 (1979), pp. 1106-1120] or Sen and Dickey [Symmetric test for second differencing in univariate time series, J. Bus. Econ. Stat. 5 (1987), pp. 463-473].

AB - This paper proposes various double unit root tests for cross-sectionally dependent panel data. The cross-sectional correlation is handled by the projection method [P.C.B. Phillips and D. Sul, Dynamic panel estimation and homogeneity testing under cross section dependence, Econom. J. 6 (2003), pp. 217-259; H.R. Moon and B. Perron, Testing for a unit root in panels with dynamic factors, J. Econom. 122 (2004), pp. 81-126] or the subtraction method [J. Bai and S. Ng, A PANIC attack on unit roots and cointegration, Econometrica 72 (2004), pp. 1127-1177]. Pooling or averaging is applied to combine results from different panel units. Also, to estimate autoregressive parameters the ordinary least squares estimation [D.P. Hasza and W.A. Fuller, Estimation for autoregressive processes with unit roots, Ann. Stat. 7 (1979), pp. 1106-1120] or the symmetric estimation [D.L. Sen and D.A. Dickey, Symmetric test for second differencing in univariate time series, J. Bus. Econ. Stat. 5 (1987), pp. 463-473] are used, and to adjust mean functions the ordinary mean adjustment or the recursive mean adjustment are used. Combinations of different methods in defactoring to eliminate the cross-sectional dependency, integrating results from panel units, estimating the parameters, and adjusting mean functions yields various available tests for double unit roots in panel data. Simple asymptotic distributions of the proposed test statistics are derived, which can be used to find critical values of the test statistics. We perform a Monte Carlo experiment to compare the performance of these tests and to suggest optimal tests for a given panel data. Application of the proposed tests to a real data, the yearly export panel data sets of several Latin-American countries for the past 50 years, illustrates the usefulness of the proposed tests for panel data, in that they reveal stronger evidence of double unit roots than the componentwise double unit root tests of Hasza and Fuller [Estimation for autoregressive processes with unit roots, Ann. Stat. 7 (1979), pp. 1106-1120] or Sen and Dickey [Symmetric test for second differencing in univariate time series, J. Bus. Econ. Stat. 5 (1987), pp. 463-473].

KW - Defactoring

KW - Panel double unit roots

KW - Recursive adjustment

KW - Symmetric estimation; nonstationarity

UR - http://www.scopus.com/inward/record.url?scp=54049142891&partnerID=8YFLogxK

U2 - 10.1080/02664760802382400

DO - 10.1080/02664760802382400

M3 - Article

AN - SCOPUS:54049142891

VL - 35

SP - 1305

EP - 1321

JO - Journal of Applied Statistics

JF - Journal of Applied Statistics

SN - 0266-4763

IS - 11

ER -