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Nonlinear IV Panel Unit Root Tests

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  • Chang, Yoosoon

    (Rice U)

Abstract

This paper presents the nonlinear IV methodology as an effective inferential basis for nonstationary panels. The nonlinear IV method resolves the inferential difficulties in testing for unit roots arising from the intrinsic heterogeneities and cross-dependencies of panel models. Individual units are allowed to be dependent through correlations among innovations, interrelatedness of short-run dynamics and/or cross-sectional cointegrations. If based on the instrumental variables that are nonlinear transformations of the lagged levels, the usual IV estimation of the augmented Dickey-Fuller type regressions yields asymptotically normal unit root tests for panels with general dependencies and heterogeneities. Moreover, the nonlinear IV estimation allows for the use of covariates to further increase power, and order statistics to test for more flexible forms of hypotheses, which are especially important in heterogeneous panels.

Suggested Citation

  • Chang, Yoosoon, 2003. "Nonlinear IV Panel Unit Root Tests," Working Papers 2003-06, Rice University, Department of Economics.
    • Handle: RePEc:ecl:riceco:2003-06
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    File URL: http://www.ruf.rice.edu/~econ/papers/2003papers/06Chang.pdf
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    References listed on IDEAS

    as
    1. Moon, H.R.Hyungsik Roger & Perron, Benoit, 2004. "Testing for a unit root in panels with dynamic factors," Journal of Econometrics, Elsevier, vol. 122(1), pages 81-126, September.
    2. Yoosoon Chang & Robin C. Sickles & Wonho Song, 2017. "Bootstrapping unit root tests with covariates," Econometric Reviews, Taylor & Francis Journals, vol. 36(1-3), pages 136-155, March.
    3. Chang, Yoosoon, 2004. "Bootstrap unit root tests in panels with cross-sectional dependency," Journal of Econometrics, Elsevier, vol. 120(2), pages 263-293, June.
    4. Chang, Yoosoon, 2002. "Nonlinear IV unit root tests in panels with cross-sectional dependency," Journal of Econometrics, Elsevier, vol. 110(2), pages 261-292, October.
    5. Yoosoon Chang & Joon Y. Park & Peter C. B. Phillips, 2001. "Nonlinear econometric models with cointegrated and deterministically trending regressors," Econometrics Journal, Royal Economic Society, vol. 4(1), pages 1-36.
    6. Park, Joon, 2003. "Nonstationary Nonlinearity: An Outlook for New Opportunities," Working Papers 2003-05, Rice University, Department of Economics.
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    8. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
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    18. Yoosoon Chang & Wonho Song, 2002. "Panel Unit Root Tests in the Presence of Cross-Sectional Dependency and Heterogeneity," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 B5-2, International Conferences on Panel Data.
    19. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
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    2. Ibrahim Elbadawi & Klaus Schmidt-Hebbel & Raimundo Soto, 2015. "Why do Countries have Fiscal Rules?," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 18(3), pages 28-61, December.

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    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General

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