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Controlling Heterogeneous Structure of Smooth Breaks in Panel Unit Root and Cointegration Testing

Author

Listed:
  • Tolga Omay

    (Atilim University)

  • Perihan Iren

    (Zayed University)

Abstract

This study aims to show the consequences of a restrictive homogeneity assumption of frequency in heterogeneous panel unit root and cointegration testing with Flexible Fourier Form. For this purpose, we use a simple panel unit root and residual based cointegration test with Flexible Fourier Form in a heterogeneous frequency setting using a bootstrap algorithm. The power of the test statistics and empirical analysis results indicate that failing to take into account a heterogeneous frequency may lead to misleading inferences, thereby leading to misspecified tests and erroneous conclusions concerning the stochastic behavior of the data in the panel sample.

Suggested Citation

  • Tolga Omay & Perihan Iren, 2023. "Controlling Heterogeneous Structure of Smooth Breaks in Panel Unit Root and Cointegration Testing," Computational Economics, Springer;Society for Computational Economics, vol. 61(1), pages 233-265, January.
    • Handle: RePEc:kap:compec:v:61:y:2023:i:1:d:10.1007_s10614-021-10205-7
    DOI: 10.1007/s10614-021-10205-7
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    More about this item

    Keywords

    Heterogeneous fractional frequency; Flexible Fourier form; Panel unit root; Structural break; Bootstrap;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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