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Cross-sectional dependency and size distortion in a small-sample homogeneous panel data unit root test

Jönsson, Kristian LU (2005) In Oxford Bulletin of Economics and Statistics 67(3). p.369-392
Abstract
In this paper, we investigate the effects of cross-sectional disturbance correlation in a homogeneous panel data unit root test. As reported by other authors, the unit root test has incorrect size in the presence of cross-sectional correlation. We suggest that a previously known estimator can be used to reduce the size distortions. We supply response surface estimates for critical values and study the size characteristics of the proposed test. We find that the suggested estimator performs well in small-sample homogeneous panel data unit root tests. The reduction in size distortion comes at a small cost of lower power against a stationary alternative.
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author
organization
publishing date
type
Contribution to journal
publication status
published
subject
in
Oxford Bulletin of Economics and Statistics
volume
67
issue
3
pages
369 - 392
publisher
Wiley-Blackwell
external identifiers
  • wos:000229584200005
  • scopus:19844367606
ISSN
1468-0084
DOI
10.1111/j.1468-0084.2005.00124.x
language
English
LU publication?
yes
id
43b9deca-c7cc-4512-815f-68a9f0263575 (old id 237330)
date added to LUP
2007-08-07 14:33:41
date last changed
2017-02-19 03:35:31
@article{43b9deca-c7cc-4512-815f-68a9f0263575,
  abstract     = {In this paper, we investigate the effects of cross-sectional disturbance correlation in a homogeneous panel data unit root test. As reported by other authors, the unit root test has incorrect size in the presence of cross-sectional correlation. We suggest that a previously known estimator can be used to reduce the size distortions. We supply response surface estimates for critical values and study the size characteristics of the proposed test. We find that the suggested estimator performs well in small-sample homogeneous panel data unit root tests. The reduction in size distortion comes at a small cost of lower power against a stationary alternative.},
  author       = {Jönsson, Kristian},
  issn         = {1468-0084},
  language     = {eng},
  number       = {3},
  pages        = {369--392},
  publisher    = {Wiley-Blackwell},
  series       = {Oxford Bulletin of Economics and Statistics},
  title        = {Cross-sectional dependency and size distortion in a small-sample homogeneous panel data unit root test},
  url          = {http://dx.doi.org/10.1111/j.1468-0084.2005.00124.x},
  volume       = {67},
  year         = {2005},
}