User menu

Accès à distance ? S'identifier sur le proxy UCLouvain

Unit root tests for panel data with AR(1) errors and small T

Primary tabs

De Blander, Rembert [UCL] Dhaene, G. [KUL]

We propose unit root tests for panel data with a small number of time periods, T, and increments that follow an AR(1) process under the null. The model is a fixed-effect panel version of the augmented Dickey–Fuller regression of order 1. Individual-specific linear trends may also be included. The test statistics are t-type statistics based on least-squares estimates from which the Nickell bias is removed. Their limiting distributions (for an increasing number of independent cross-section units, N, and fixed T) are standard normal. Our test generalizes the panel unit root test of Harris and Tzavalis, which is based on an unaugmented Dickey–Fuller regression. As an illustration, we examine whether the Law of One Price holds in the European car market since the start of stage three of the EMU in 1999. We find strong evidence of price convergence in the EMU countries.

Document type Article de périodique (Journal article) – Article de recherche
Access type Accès restreint
Publication date 2012
Language Anglais
Journal information "The Econometrics Journal" - Vol. 15, no. 1, p. 101-124 (février 2012)
Peer reviewed yes
Publisher Wiley-Blackwell Publishing Ltd. ((United Kingdom) Oxford)
issn 1368-4221
e-issn 1368-423X
Publication status Publié
Affiliations USL-B - Faculté des sciences économiques, sociales et politiques
UCL - SST/ELI/ELIA - Agronomy
KUL - Department of economics
Keywords Panel data ; Unit root ; Serial correlation
Links
  1. Arellano Manuel, Bond Stephen, Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations, 10.2307/2297968
  2. Baltagi Badi H., Kao Chihwa, Nonstationary panels, cointegration in panels and dynamic panels: A survey, Advances in Econometrics ISBN:0762306882 p.7-51, 10.1016/s0731-9053(00)15002-9
  3. Banerjee Anindya, Panel Data Unit Roots and Cointegration: An Overview, 10.1111/1468-0084.61.s1.12
  4. Binder Michael, Hsiao Cheng, Pesaran M. Hashem, ESTIMATION AND INFERENCE IN SHORT PANEL VECTOR AUTOREGRESSIONS WITH UNIT ROOTS AND COINTEGRATION, 10.1017/s0266466605050413
  5. Blundell Richard, Bond Stephen, Initial conditions and moment restrictions in dynamic panel data models, 10.1016/s0304-4076(98)00009-8
  6. Breitung Järg, Meyer Wolfgang, Testing for unit roots in panel data: are wages on different bargaining levels cointegrated?, 10.1080/00036849400000081
  7. Bun Maurice J.G, Carree Martin A, Bias-Corrected Estimation in Dynamic Panel Data Models, 10.1198/073500104000000532
  8. Cati Regina Celia, Garcia Marcio G. P., Perron Pierre, Unit roots in the presence of abrupt governmental interventions with an application to Brazilian data, 10.1002/(sici)1099-1255(199901/02)14:1<27::aid-jae490>3.0.co;2-g
  9. Choi In, Unit root tests for panel data, 10.1016/s0261-5606(00)00048-6
  10. De Wachter Stefan, Harris Richard D.F., Tzavalis Elias, Panel data unit roots tests: The role of serial correlation and the time dimension, 10.1016/j.jspi.2005.11.004
  11. Dickey David A., Fuller Wayne A., Distribution of the Estimators for Autoregressive Time Series With a Unit Root, 10.2307/2286348
  12. Engel, American Economic Review, 86, 1112 (1996)
  13. Engel C., Rogers J. H., European product market integration after the euro, 10.1111/j.1468-0327.2004.00126.x
  14. Fisher, Statistical Methods for Research Workers (1932)
  15. Fleissig Adrian, Strauss Jack, Panel Unit-Root Tests of OECD Stochastic Convergence, 10.1111/1467-9396.00270
  16. Frankel, How Open is the U.S. Economy, 227 (1986)
  17. Frankel, National Saving and Economic Performance, 36 (1991)
  18. Frankel Jeffrey A., Rose Andrew K., A panel project on purchasing power parity: Mean reversion within and between countries, 10.1016/0022-1996(95)01396-2
  19. Goldberg P. K., Verboven F., Cross-country price dispersion in the euro era: a case study of the European car market, 10.1111/j.1468-0327.2004.00130.x
  20. Goldberg Pinelopi K., Verboven Frank, Market integration and convergence to the Law of One Price: evidence from the European car market, 10.1016/j.jinteco.2003.12.002
  21. Hadri Kaddour, Larsson Rolf, Testing for stationarity in heterogeneous panel data where the time dimension is finite, 10.1111/j.1368-423x.2005.00151.x
  22. Harris , R E. Tzavalis 1998 Inference for unit roots in dynamic panels with heteroscedastic and serially correlated errors
  23. Harris Richard D.F., Tzavalis Elias, Inference for unit roots in dynamic panels where the time dimension is fixed, 10.1016/s0304-4076(98)00076-1
  24. Harris Richard D. F., Tzavalis Elias, Testing for Unit Roots in Dynamic Panels in the Presence of a Deterministic Trend: Re-examining the Unit Root Hypothesis for Real Stock Prices and Dividends, 10.1081/etc-120039607
  25. Haskel Jonathan, Wolf Holger, The Law of One Price-A Case Study, 10.1111/1467-9442.00259
  26. Hegwood Natalie D., Papell David H., Purchasing Power Parity under the Gold Standard, 10.2307/1061557
  27. Hlouskova Jaroslava, Wagner Martin, The Performance of Panel Unit Root and Stationarity Tests: Results from a Large Scale Simulation Study, 10.1080/07474930500545504
  28. Hsiao Cheng, Hashem Pesaran M., Kamil Tahmiscioglu A., Maximum likelihood estimation of fixed effects dynamic panel data models covering short time periods, 10.1016/s0304-4076(01)00143-9
  29. Im Kyung So, Pesaran M.Hashem, Shin Yongcheol, Testing for unit roots in heterogeneous panels, 10.1016/s0304-4076(03)00092-7
  30. Kiviet Jan F., On bias, inconsistency, and efficiency of various estimators in dynamic panel data models, 10.1016/0304-4076(94)01643-e
  31. Krugman, Real-Financial Linkages among Open Economies, 49 (1987)
  32. Kruiniger , H E. Tzavalis 2002 Testing for unit roots in short dynamic panels with serially correlated and heteroscedastic disturbance terms
  33. Kwiatkowski Denis, Phillips Peter C.B., Schmidt Peter, Shin Yongcheol, Testing the null hypothesis of stationarity against the alternative of a unit root, 10.1016/0304-4076(92)90104-y
  34. Levin Andrew, Lin Chien-Fu, James Chu Chia-Shang, Unit root tests in panel data: asymptotic and finite-sample properties, 10.1016/s0304-4076(01)00098-7
  35. Lothian James R., Taylor Mark P., Real Exchange Rate Behavior: The Recent Float from the Perspective of the Past Two Centuries, 10.1086/262031
  36. Maddala G. S., Wu Shaowen, A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test, 10.1111/1468-0084.61.s1.13
  37. Madsen , E 2003 Using GMM when testing for a unit root in panels where the time-series dimension is fixed
  38. Madsen Edith, Unit root inference in panel data models where the time-series dimension is fixed: a comparison of different tests, 10.1111/j.1368-423x.2009.00302.x
  39. Nickell Stephen, Biases in Dynamic Models with Fixed Effects, 10.2307/1911408
  40. Papell David H, The great appreciation, the great depreciation, and the purchasing power parity hypothesis, 10.1016/s0022-1996(01)00145-3
  41. Parsley D. C., Wei S.-J., Convergence to the Law of One Price Without Trade Barriers or Currency Fluctuations, 10.2307/2946713
  42. Parsley David C., Wei Shang-Jin, Explaining the border effect: the role of exchange rate variability, shipping costs, and geography, 10.1016/s0022-1996(01)00096-4
  43. Perron Pierre, Vogelsang Timothy J., Nonstationarity and Level Shifts with an Application to Purchasing Power Parity, 10.2307/1391544
  44. Phillips Peter C.B., Moon Hyungsik R., Nonstationary panel data analysis: an overview of some recent developments, 10.1080/07474930008800473
  45. PHILLIPS PETER C. B., PERRON PIERRE, Testing for a unit root in time series regression, 10.1093/biomet/75.2.335
  46. Phillips Peter C.B., Sul Donggyu, Bias in dynamic panel estimation with fixed effects, incidental trends and cross section dependence, 10.1016/j.jeconom.2006.03.009
  47. Quah Danny, Exploiting cross-section variation for unit root inference in dynamic data, 10.1016/0165-1765(93)00302-5
  48. Rogoff, Journal of Economic Literature, 34, 647 (1996)
  49. Sarafidis Vasilis, Yamagata Takashi, Robertson Donald, A test of cross section dependence for a linear dynamic panel model with regressors, 10.1016/j.jeconom.2008.10.006
  50. Taylor Alan M., Potential Pitfalls for the Purchasing-Power-Parity Puzzle? Sampling and Specification Biases in Mean-Reversion Tests of the Law of One Price, 10.1111/1468-0262.00199
  51. Taylor Alan M., A Century of Purchasing-Power Parity, 10.1162/003465302317331973
Bibliographic reference De Blander, Rembert ; Dhaene, G.. Unit root tests for panel data with AR(1) errors and small T. In: The Econometrics Journal, Vol. 15, no. 1, p. 101-124 (février 2012)
Permanent URL http://hdl.handle.net/2078.1/107896