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Nonparametric rank tests for non-stationary panels

Pedroni, Peter L.; Vogelsang, Timothy J.; Wagner, Martin and Westerlund, Joakim LU (2015) In Journal of Econometrics 185(2). p.378-391
Abstract
We develop a set of nonparametric rank tests for non-stationary panels based on multivariate variance ratios which use untruncated kernels. As such, the tests do not require the choice of tuning parameters associated with bandwidth or lag length and also do not require choices with respect to numbers of common factors. The tests allow for unrestricted cross-sectional dependence and dynamic heterogeneity among the units of the panel, provided simply that a joint functional central limit theorem holds for the panel of differenced series. We provide a discussion of the relationships between our setting and the settings for which first- and second generation panel unit root tests are designed. In Monte Carlo simulations we illustrate the... (More)
We develop a set of nonparametric rank tests for non-stationary panels based on multivariate variance ratios which use untruncated kernels. As such, the tests do not require the choice of tuning parameters associated with bandwidth or lag length and also do not require choices with respect to numbers of common factors. The tests allow for unrestricted cross-sectional dependence and dynamic heterogeneity among the units of the panel, provided simply that a joint functional central limit theorem holds for the panel of differenced series. We provide a discussion of the relationships between our setting and the settings for which first- and second generation panel unit root tests are designed. In Monte Carlo simulations we illustrate the small-sample performance of our tests when they are used as panel unit root tests under the more restrictive DGPs for which panel unit root tests are typically designed, and for more general DGPs we also compare the small-sample performance of our nonparametric tests to parametric rank tests. Finally, we provide an empirical illustration by testing for income convergence among countries. (C) 2014 Elsevier B.V. All rights reserved. (Less)
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author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
Cointegration, Cross-sectional dependence, Nonparametric rank tests, Time series panel, Unit roots
in
Journal of Econometrics
volume
185
issue
2
pages
378 - 391
publisher
Elsevier
external identifiers
  • wos:000350778500006
  • scopus:84922655173
ISSN
0304-4076
DOI
10.1016/j.jeconom.2014.08.013
language
English
LU publication?
yes
id
faecd178-2ed3-47d7-b3c6-61b9480430fa (old id 5294025)
date added to LUP
2015-04-27 08:24:47
date last changed
2017-01-01 03:15:59
@article{faecd178-2ed3-47d7-b3c6-61b9480430fa,
  abstract     = {We develop a set of nonparametric rank tests for non-stationary panels based on multivariate variance ratios which use untruncated kernels. As such, the tests do not require the choice of tuning parameters associated with bandwidth or lag length and also do not require choices with respect to numbers of common factors. The tests allow for unrestricted cross-sectional dependence and dynamic heterogeneity among the units of the panel, provided simply that a joint functional central limit theorem holds for the panel of differenced series. We provide a discussion of the relationships between our setting and the settings for which first- and second generation panel unit root tests are designed. In Monte Carlo simulations we illustrate the small-sample performance of our tests when they are used as panel unit root tests under the more restrictive DGPs for which panel unit root tests are typically designed, and for more general DGPs we also compare the small-sample performance of our nonparametric tests to parametric rank tests. Finally, we provide an empirical illustration by testing for income convergence among countries. (C) 2014 Elsevier B.V. All rights reserved.},
  author       = {Pedroni, Peter L. and Vogelsang, Timothy J. and Wagner, Martin and Westerlund, Joakim},
  issn         = {0304-4076},
  keyword      = {Cointegration,Cross-sectional dependence,Nonparametric rank tests,Time series panel,Unit roots},
  language     = {eng},
  number       = {2},
  pages        = {378--391},
  publisher    = {Elsevier},
  series       = {Journal of Econometrics},
  title        = {Nonparametric rank tests for non-stationary panels},
  url          = {http://dx.doi.org/10.1016/j.jeconom.2014.08.013},
  volume       = {185},
  year         = {2015},
}