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Pooled Panel Unit Root Tests and the Effect of Past Initialization

Westerlund, Joakim LU (2016) In Econometric Reviews 35(3). p.396-427
Abstract
This paper analyzes the role of initialization when testing for a unit root in panel

data, an issue that has received surprisingly little attention in the literature. In fact, most

studies assume that the initial value is either zero or bounded. As a response to this, the

current paper considers a model in which the initialization is in the past, which is shown

to have several distinctive features that makes it attractive, even in comparison to the

common time series practice of making the initial value a draw from its unconditional

distribution under the stationary alternative. The results have implications not only for

theory, but also for applied work. In particular, and in... (More)
This paper analyzes the role of initialization when testing for a unit root in panel

data, an issue that has received surprisingly little attention in the literature. In fact, most

studies assume that the initial value is either zero or bounded. As a response to this, the

current paper considers a model in which the initialization is in the past, which is shown

to have several distinctive features that makes it attractive, even in comparison to the

common time series practice of making the initial value a draw from its unconditional

distribution under the stationary alternative. The results have implications not only for

theory, but also for applied work. In particular, and in contrast to the time series case,

in panels the effect of the initialization need not be negative but can actually lead to

improved test performance. (Less)
Please use this url to cite or link to this publication:
author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
Panel unit root test, Initial value, Local asymptotic power.
in
Econometric Reviews
volume
35
issue
3
pages
396 - 427
publisher
Taylor & Francis
external identifiers
  • wos:000367284000004
  • scopus:84953362319
ISSN
0747-4938
DOI
10.1080/07474938.2013.833829
language
English
LU publication?
yes
id
8a77b01b-6897-4890-835e-0057cb409ab4 (old id 4588892)
alternative location
http://www.tandfonline.com/doi/abs/10.1080/07474938.2013.833829
date added to LUP
2014-08-20 13:22:48
date last changed
2017-04-16 03:47:34
@article{8a77b01b-6897-4890-835e-0057cb409ab4,
  abstract     = {This paper analyzes the role of initialization when testing for a unit root in panel<br/><br>
data, an issue that has received surprisingly little attention in the literature. In fact, most<br/><br>
studies assume that the initial value is either zero or bounded. As a response to this, the<br/><br>
current paper considers a model in which the initialization is in the past, which is shown<br/><br>
to have several distinctive features that makes it attractive, even in comparison to the<br/><br>
common time series practice of making the initial value a draw from its unconditional<br/><br>
distribution under the stationary alternative. The results have implications not only for<br/><br>
theory, but also for applied work. In particular, and in contrast to the time series case,<br/><br>
in panels the effect of the initialization need not be negative but can actually lead to<br/><br>
improved test performance.},
  author       = {Westerlund, Joakim},
  issn         = {0747-4938},
  keyword      = {Panel unit root test,Initial value,Local asymptotic power.},
  language     = {eng},
  number       = {3},
  pages        = {396--427},
  publisher    = {Taylor & Francis},
  series       = {Econometric Reviews},
  title        = {Pooled Panel Unit Root Tests and the Effect of Past Initialization},
  url          = {http://dx.doi.org/10.1080/07474938.2013.833829},
  volume       = {35},
  year         = {2016},
}