infinity simultaneously (under the additional condition that N/T -> 0) and the limiting distributions under the null are shown to be standard normal. We also extend our test to the more realistic case where the shocks are serially correlated. We use Monte Carlo simulations to examine the finite sample property of the augmented KPSS test."> infinity simultaneously (under the additional condition that N/T -> 0) and the limiting distributions under the null are shown to be standard normal. We also extend our test to the more realistic case where the shocks are serially correlated. We use Monte Carlo simulations to examine the finite sample property of the augmented KPSS test.">
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A Simple Panel Stationarity Test in the Presence of Cross-Sectional Dependence

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  • Kaddour Hadri
  • Eiji Kurozumi
Abstract
This paper develops a simple test for the null hypothesis of stationarity in heterogeneous panel data with cross-sectional dependence in the form of a common factor in the disturbance. We do not estimate the common factor but mop-up its effect by employing the same method as the one proposed in Pesaran (2007) in the unit root testing context. Our test is basically the same as the KPSS test but the regression is augmented by cross-sectional average of the observations. We also develop a Lagrange multiplier (LM) test allowing for cross-sectional dependence and, under restrictive assumptions, compare our augmented KPSS test with the extended LM test under the null of stationarity, under the local alternative and under the fixed alternative, and discuss the differences between these two tests. The latter results are derived using the joint asymptotic limits where T and N-> infinity simultaneously (under the additional condition that N/T -> 0) and the limiting distributions under the null are shown to be standard normal. We also extend our test to the more realistic case where the shocks are serially correlated. We use Monte Carlo simulations to examine the finite sample property of the augmented KPSS test.

Suggested Citation

  • Kaddour Hadri & Eiji Kurozumi, 2009. "A Simple Panel Stationarity Test in the Presence of Cross-Sectional Dependence," Economics Working Papers 09-01, Queen's Management School, Queen's University Belfast.
    • Handle: RePEc:qub:wpaper:0901
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    Cited by:

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    3. Oladunjoye Opeyemi Nathaniel, 2019. "Validity of Purchasing Power Parity (PPP) Hypothesis in the Ecowas (1980–2017)," Emerging Economy Studies, International Management Institute, vol. 5(2), pages 141-156, November.
    4. Ahmed, Mumtaz & Khan, Atif Maqbool & Bibi, Salma & Zakaria, Muhammad, 2017. "Convergence of per capita CO2 emissions across the globe: Insights via wavelet analysis," Renewable and Sustainable Energy Reviews, Elsevier, vol. 75(C), pages 86-97.
    5. Bakas, Dimitrios & Papapetrou, Evangelia, 2014. "Unemployment in Greece: Evidence from Greek regions using panel unit root tests," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(4), pages 551-562.
    6. Christidou, Maria & Panagiotidis, Theodore, 2010. "Purchasing Power Parity and the European single currency: Some new evidence," Economic Modelling, Elsevier, vol. 27(5), pages 1116-1123, September.
    7. Evangelia Papapetrou & Dimitrios Bakas, 2012. "Unemployment in Greece: evidence from Greek regions," Working Papers 146, Bank of Greece.
    8. Declan French, 2012. "Causation between health and income: a need to panic," Empirical Economics, Springer, vol. 42(2), pages 583-601, April.
    9. Eiji Kurozumi & Daisuke Yamazaki & Kaddour Hadri, 2012. "Covariate Unit Root Test for Cross-Sectionally Dependent Panel Data," Global COE Hi-Stat Discussion Paper Series gd12-256, Institute of Economic Research, Hitotsubashi University.
    10. Dina Azhgaliyeva, 2013. "What Makes Oil Revenue Funds Effective," International Conference on Energy, Regional Integration and Socio-economic Development 6023, EcoMod.
    11. Thai V. H. Nguyen & Agyenim Boateng & Tra Thi Thu Pham, 2019. "Involuntary excess reserve and heterogeneous transmission of policy rates to bank lending rates in China," Empirical Economics, Springer, vol. 57(3), pages 1023-1044, September.
    12. Venturini, Francesco, 2012. "Looking into the black box of Schumpeterian growth theories: An empirical assessment of R&D races," European Economic Review, Elsevier, vol. 56(8), pages 1530-1545.
    13. Vishal Jaunky, 2013. "Democracy and economic growth in Sub-Saharan Africa: a panel data approach," Empirical Economics, Springer, vol. 45(2), pages 987-1008, October.

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    More about this item

    Keywords

    Panel data; Stationarity; KPSS test; Cross-sectional dependence; LM test; Locally best test; Joint asymptotic;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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