Rethinking the Univariate Approach to Panel Unit Root Testing: Using Covariates to Resolve the Incidental Trend Problem: Using Covariates to Resolve the Incidental Trend Problem
(2015) In Journal of Business & Economic Statistics 33(3). p.430-443- Abstract
- In an influential paper, Hansen (Rethinking the Univariate Approach to Unit Root
Testing: Using Covariates to Increase Power, Econometric Theory 11, 1148–1171, 1995)
shows that covariate augmentation can lead to substantial power gains when compared
to univariate tests. In this paper we ask if this result extends also to the panel data
context? The answer turns out to be yes, which is maybe not that surprising. What is
surprising, however, is the extent of the power gain, which is shown to be able to more
than outweigh the well-known power loss in the presence of incidental trends. That is,
the covariates have an order effect on the neighborhood around unity for which... (More) - In an influential paper, Hansen (Rethinking the Univariate Approach to Unit Root
Testing: Using Covariates to Increase Power, Econometric Theory 11, 1148–1171, 1995)
shows that covariate augmentation can lead to substantial power gains when compared
to univariate tests. In this paper we ask if this result extends also to the panel data
context? The answer turns out to be yes, which is maybe not that surprising. What is
surprising, however, is the extent of the power gain, which is shown to be able to more
than outweigh the well-known power loss in the presence of incidental trends. That is,
the covariates have an order effect on the neighborhood around unity for which local
asymptotic power is negligible. (Less)
Please use this url to cite or link to this publication:
https://lup.lub.lu.se/record/4588925
- author
- Westerlund, Joakim LU
- organization
- publishing date
- 2015
- type
- Contribution to journal
- publication status
- published
- subject
- keywords
- Unit root test, Panel data, Covariates, Local asymptotic power, Incidental trends.
- in
- Journal of Business & Economic Statistics
- volume
- 33
- issue
- 3
- pages
- 430 - 443
- publisher
- American Statistical Association
- external identifiers
-
- wos:000358415500010
- scopus:84937207350
- ISSN
- 0735-0015
- DOI
- 10.1080/07350015.2014.962697
- language
- English
- LU publication?
- yes
- id
- 0012f8ec-0dc8-4c45-8b7b-7f7cd7f139b8 (old id 4588925)
- date added to LUP
- 2016-04-01 10:23:54
- date last changed
- 2022-04-12 05:54:41
@article{0012f8ec-0dc8-4c45-8b7b-7f7cd7f139b8,
abstract = {{In an influential paper, Hansen (Rethinking the Univariate Approach to Unit Root<br/><br>
Testing: Using Covariates to Increase Power, Econometric Theory 11, 1148–1171, 1995)<br/><br>
shows that covariate augmentation can lead to substantial power gains when compared<br/><br>
to univariate tests. In this paper we ask if this result extends also to the panel data<br/><br>
context? The answer turns out to be yes, which is maybe not that surprising. What is<br/><br>
surprising, however, is the extent of the power gain, which is shown to be able to more<br/><br>
than outweigh the well-known power loss in the presence of incidental trends. That is,<br/><br>
the covariates have an order effect on the neighborhood around unity for which local<br/><br>
asymptotic power is negligible.}},
author = {{Westerlund, Joakim}},
issn = {{0735-0015}},
keywords = {{Unit root test; Panel data; Covariates; Local asymptotic power; Incidental trends.}},
language = {{eng}},
number = {{3}},
pages = {{430--443}},
publisher = {{American Statistical Association}},
series = {{Journal of Business & Economic Statistics}},
title = {{Rethinking the Univariate Approach to Panel Unit Root Testing: Using Covariates to Resolve the Incidental Trend Problem: Using Covariates to Resolve the Incidental Trend Problem}},
url = {{http://dx.doi.org/10.1080/07350015.2014.962697}},
doi = {{10.1080/07350015.2014.962697}},
volume = {{33}},
year = {{2015}},
}