This paper studies subsampling hypothesis tests for panel data that are possibly nonstationary, and cross-sectionally correlated and cross-sectionally cointegrated. The tests include panel unit root ...and cointegration tests as special cases. The number of cross-sectional units in the panel data is assumed to be finite, and that of time series observations infinite. Cross-sectional correlation is allowed for both regressors and error terms. Two types of subsampling, non-centered and centered, are considered. It is shown that empirical distributions using subsamples uniformly converge to corresponding limiting distributions. For the non-centered subsampling, the result is shown in the mode of almost sure convergence and discontinuous limiting distributions are allowed. For the centered subsampling, the uniform convergence result is obtained in the mode of convergence in probability and only for continuous limiting distributions. Test consistency using the critical values from the empirical distributions is also established. These results are applied to panel unit root and stationarity tests. The panel unit root tests considered are Levin, Lin and Chu (2002)'s t-test, Im, Pesaran and Shin's (2003) averaged t-test and Choi's (2001) Z test. For the null of stationarity, Hadri's (2000) test is used. Block sizes of subsamples are chosen by stochastic calibration. Simulation results show that the subsampling distributions of the panel unit root tests using the stochastic calibration provide reasonably good approximations to the finite sample distributions of the tests.
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 compared. To adjust for short-run serial correlation of the errors, a pre-whitening procedure is suggested that yields a test statistic with a standard normal limiting distribution as N and T tends to infinity. The test procedure is further generalized to accommodate individual specific intercepts. From our Monte Carlo simulations it turns out that the robust OLS t-statistic performs well with respect to size and power, whereas the the GLS t-statistic may suffer from severe size distortions in small and moderate sample sizes. To improve the small sample properties of the GLS test procedure, a bootstrap version of the test is available.
We ask whether failure to control for research and development (R&D) activity in an output convergence regression affects the coefficient estimates of initial output. We focus on output convergence ...to an economy¡¯s own steady-state growth path using time series regression framework and convergence across economies using panel estimation. We use data for the 30 member countries of the Organization for Economic Co-operation and Development (OECD) and US state-level real per capita output and per capita patents. The results indicate that after controlling for R&D activity the coefficient estimates increase in magnitude (in absolute terms) and in significance levels. Furthermore, the results are not sensitive to the dataset used or the estimation procedure.
This paper introduces two different non-parametric tests for panel unit root based on the wavelet decomposition of time series which may be used in the presence of cross-sectional dependency and an ...unknown structural break in the data. These tests are compared with the parametric IPS test proposed by Im, Pesaran and Shin (1997) and the Wald test suggested by Taylor and Sarno (1998). By means of Monte Carlo simulations, the results shown that the size and power properties of the new non-parametric tests are robust to cross sectional dependency of the error terms. Furthermore, it is shown that the tests may be used when the time series has an unknown structural break. These tests have also shown to have high power against the alternative hypothesis under the above mentioned conditioned, whiles the IPS and the Wald did not have any power to reject the alternative hypothesis in the presence of structural break in the data.
This paper deals with cross section dependence, homogeneity restrictions and small sample bias issues in dynamic panel regressions. To address the bias problem we develop a panel approach to median ...unbiased estimation that takes account of cross section dependence. The estimators given here considerably reduce the effects of bias and gain precision from estimating cross section error correlation. This paper also develops an asymptotic theory for tests of coefficient homogeneity under cross section dependence, and proposes a modified Hausman test to test for the presence of homogeneous unit roots. An orthogonalization procedure, based on iterated method of moments estimation, is developed to remove cross section dependence and permit the use of conventional and meta unit root tests with panel data. Some simulations investigating the finite sample performance of the estimation and test procedures are reported.
In this paper, different tests of unit root in panel data are implemented for studying real economic convergence and catching-up in ten new members of European Union (EU) toward average EU per capita ...income and average of ancient members. We used the EuroStat quarterly real per capita output data on the period 1995 - 2005. The results support existence of absolute convergence and catching-up processes in sample countries towards EU standards.
This paper empirically analyzes the long-run equilibrium between trade balances and the terms of trade using the nonstationary panel data analysis. Empirical results indicate that trade balances and ...the terms of trade do not have cointegrating relation for G-7 countries. This implies that the deterioration in the terms of trade will not necessarily improve a country's trade balance in the long-run.
After the collapse of Bretton-Woods system, it was believed that under flexible exchange rate system nominal exchange rate will adjust instantaneously to reflect movements in prices between two ...countries. Consequently, Purchasing Power Parity (PPP) will hold continuously. This study examines the validity of long-run PPP hypothesis for two panels of OECD and developing Asian countries. The results of the study suggest that the PPP hypothesis with its strict symmetry and proportionality condition does not hold in the post-Bretton Woods era. However, when the strict PPP conditions are relaxed, we find a cointegrating relationship between nominal exchange rate and prices, which in turn provides support for the weak form of PPP.
The aim of this paper is to investigate whether price dynamics is homogeneous across the Eurozone countries. Relying on monthly data over the January 1970-July 2011 period, we test for the absolute ...purchasing power parity (PPP) hypothesis through the implementation of second-generation panel unit root and cointegration tests. Our results show that price dynamics are heterogeneous depending on both the time period and the considered group of countries. More specifically, while PPP is validated for the core EMU countries, this hypothesis does not hold for Northern peripheral economies. Turning to the Southern countries, PPP is observed only before the launch of the euro.
PDF
