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A modified LLC panel unit root test of the PPP hypothesis

Westerlund, Joakim LU and Blomquist, Johan LU (2013) In Empirical Economics 44(2). p.833-860
Abstract
In a recent study,Westerlund (Empir Econ 37:517–531, 2009) shows that the performance of the popular LLC (Levin et al., J Econ 108:1–24, 2002) panel unit root test depends critically on the choice of lag truncation used when correcting for serial correlation, and that it is only when this parameter is set as a function of time that the power raises above size. The purpose of the current paper is to propose a modified test that does not suffer from this drawback. The new test is not only simpler to compute but also superior in terms of small-sample performance, which is illustrated using an example purchasing power parity for less developed countries.
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author
and
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
Non-stationary panel data, Panel unit root test, Purchasing power parity, Cross-section dependence
in
Empirical Economics
volume
44
issue
2
pages
833 - 860
publisher
Physica Verlag
external identifiers
  • wos:000316345900021
  • scopus:84875218514
ISSN
0377-7332
DOI
10.1007/s00181-012-0552-x
language
English
LU publication?
yes
id
fecfed8b-bb25-4f00-b4f9-18bba7053687 (old id 3626426)
date added to LUP
2016-04-01 14:37:08
date last changed
2022-01-28 01:36:02
@article{fecfed8b-bb25-4f00-b4f9-18bba7053687,
  abstract     = {{In a recent study,Westerlund (Empir Econ 37:517–531, 2009) shows that the performance of the popular LLC (Levin et al., J Econ 108:1–24, 2002) panel unit root test depends critically on the choice of lag truncation used when correcting for serial correlation, and that it is only when this parameter is set as a function of time that the power raises above size. The purpose of the current paper is to propose a modified test that does not suffer from this drawback. The new test is not only simpler to compute but also superior in terms of small-sample performance, which is illustrated using an example purchasing power parity for less developed countries.}},
  author       = {{Westerlund, Joakim and Blomquist, Johan}},
  issn         = {{0377-7332}},
  keywords     = {{Non-stationary panel data; Panel unit root test; Purchasing power parity; Cross-section dependence}},
  language     = {{eng}},
  number       = {{2}},
  pages        = {{833--860}},
  publisher    = {{Physica Verlag}},
  series       = {{Empirical Economics}},
  title        = {{A modified LLC panel unit root test of the PPP hypothesis}},
  url          = {{http://dx.doi.org/10.1007/s00181-012-0552-x}},
  doi          = {{10.1007/s00181-012-0552-x}},
  volume       = {{44}},
  year         = {{2013}},
}