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A nonlinear panel unit root test under cross section dependence

Author

Listed:
  • Mario Cerrato

    (London Metropolitan University)

  • Christian De Peretti

    (EPEE, University of Evry-Val-d'Essonne)

  • Nick Sarantis

    (London Metropolitan University)

Abstract
We propose a nonlinear heterogeneous unit root test for testing the null hypothesis of unitroots processes against the alternative that allows a proportion of units to be generated by globally stationary ESTAR processes and a remaining non-zero proportion to be generated by unit root processes. The proposed test is simple to apply and accommodates cross sectional dependence. Monte Carlo simulation shows that our test holds correct size and under the hypothesis that data are generated by globally stationary ESTAR processes has a better power than the recent test proposed in Pesaran (2005).An application to a panel of bilateral real exchange rate series with the US Dollar from the 11 major OECD countries is provided.

Suggested Citation

  • Mario Cerrato & Christian De Peretti & Nick Sarantis, 2007. "A nonlinear panel unit root test under cross section dependence," Documents de recherche 07-12, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    • Handle: RePEc:eve:wpaper:07-12
    as

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    References listed on IDEAS

    as
    1. Cerrato, Mario & Sarantis, Nicholas, 2007. "A bootstrap panel unit root test under cross-sectional dependence, with an application to PPP," Computational Statistics & Data Analysis, Elsevier, vol. 51(8), pages 4028-4037, May.
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    9. Kapetanios, George & Shin, Yongcheol & Snell, Andy, 2003. "Testing for a unit root in the nonlinear STAR framework," Journal of Econometrics, Elsevier, vol. 112(2), pages 359-379, February.
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    25. Donauer, Stefanie & Heinen, Florian & Sibbertsen, Philipp, 2010. "Identification problems in ESTAR models and a new model," Hannover Economic Papers (HEP) dp-444, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    26. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Non-linear panel unit root tests; cross sectional dependence; Purchasing Power Parity;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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