For panel models of cross-sectionally correlated time series, seasonal unit root tests are constructed for each seasonal frequency. The tests are based on instrumental variable estimators which are modifications of signs of the regressors. Cross-sectional correlation is controlled by rotating the system of time series using an estimated error covariance matrix. The limiting null distributions of the tests are chi-squared and are free from nuisance parameters arising from cross-sectional correlation. A Monte-Carlo experiment compares size and power performances of the proposed tests.
Bibliographical noteFunding Information:
The authors are very grateful for the two anonymous referees for their comments. This work was supported by the Korea Research Foundation Grant funded by the Korean Government (MOEHRD) (KRF-2005-070-C00021).
- HEGY model
- Instrumental variable estimation
- Sign instrument