A number of panel unit root tests that allow for cross section dependence have been proposed in the literature that use orthogonalization type procedures to asymptotically eliminate the cross dependence of the series before standard panel unit root tests are applied to the transformed series. In this paper we propose a simple alternative where the standard ADF regressions are augmented with the...

Although the impacts of structural instability on testing for unit root have been studied extensively for univariate time series, such impacts on panel data unit root tests are still relatively unknown. A major issue is the choice of model in accommodating different types of break (instability) prior to testing for unit root. Specifically, researchers must specify a potential break in the inter...

A panel unit root test is derived based on a Lagrangian Multiplier for panels with a cross-section dependence modeled using factor models. The test statistic is shown to be different from square of test statistic of Pesaran (2007) even for a case of no constant and no trend, hence the test statistic is not simply a different calculation of the suggestion made in Pesaran (2007). Implementation o...

This paper aims to investigate stochastic properties of the consumption-income ratios in 11 Central and Eastern European (CEE) countries. We use the heterogeneous panel unit root tests those account for cross-sectional dependence and the Modified Augmented Dickey-Fuller unit root test over the period March 1997-September 2012 in quarterly data set. We find the strong mean-reversion in the consu...

We use the well known USDA dataset of real exchange rates to address the question of whether PPP holds for agricultural commodities. Both unit root tests and the recently proposed more powerful class of panel unit root tests, which take into account cross-section correlation across the units in the panel, are used. Properties of unit roots and panel tests are analyzed by Monte Carlo simulation....

In this paper alternative approaches for testing the unit root hypothesis in panel data are considered. First, a robust version of the Dickey-Fuller t-statistic under contemporaneous correlated errors is suggested. Second, the GLS t-statistic is considered, which is based on the t-statistic of the transformed model. The asymptotic power of both tests against a sequence of local alternatives is ...

The increasing availability of new datasets where the time-series dimension and the cross-section dimension are of the same order of magnitude asks for new techniques for the analysis of this peculiar kind of data. In the panel unit root test framework, two generations of tests have been developed: a first generation whose main limit is the assumption of cross-sectional independence across unit...

The effect of the single currency on the Purchasing Power Parity (PPP) hypothesis is examined in this study for the 15 EU countries, vis a vis the US dollar, before and after the advent of the euro. Standard as well as nonlinear unit root tests are employed on the time series dimension. Unit root tests reject PPP and the highest half-lives are observed after the introduction of the single curre...

a r t i c l e i n f o JEL Classification: C22 F31 Keywords: Purchasing power parity Real effective exchange rate Transition countries Sequential Panel Selection Method Panel KSS unit root test Fourier function Policy implications This study applies the Sequential Panel Selection Method (SPSM), proposed by Chortareas and Kapetanios (2009) to test the validity of long-run purchasing power parity ...