Testing for Unit Roots in Dynamic Panels with Smooth Breaks and Cross-Sectionally Dependent Errors
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Date
2018
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Volume Title
Publisher
Springer
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Abstract
We develop the extended unit root testing procedure for dynamic panels characterised by slowly moving trends (SMT) and cross-section dependence (CSD). We allow SMT to follow the smooth logistic transition function and the components error terms to contain the unobserved common factors. We propose the two panel unit root test statistics, one derived by the extended common correlated effects (CCE) estimator and the other based on the Sieve bootstrap. We have conducted extensive simulation exercises and document that the failure to take into account SMT and CSD may lead to misleading inference. On the other hand, we find that both bootstrap and CCE-based tests maintain good power properties in small samples in the presence SMT and CSD. We apply our proposed tests to real interest rates for 17 OECD countries and find overwhelming evidence in favour of the Fisher hypothesis.
Description
Hasanov, Mubariz/0000-0003-0216-9531; Hasanov, Mübariz/0000-0003-0216-9531
Keywords
Slow moving trends, Cross-section dependence, Common correlated estimator, Bootstrap, Panel unit root tests
Turkish CoHE Thesis Center URL
Fields of Science
Citation
18
WoS Q
Q2
Scopus Q
Q2
Source
Volume
52
Issue
1
Start Page
167
End Page
193