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A Panel-CADF Test for Unit Roots

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  • Costantini, Mauro
  • Lupi, Claudio
  • Popp, Stephan

Abstract

In this paper we propose the extension of the covariate-augmented Dickey Fuller (CADF) test for unit roots developed by Hansen (1995} to the panel case. We show that the extension is viable and gives power gains with respect to the time series approach. Particular attention is paid to cross-unit dependence.

Suggested Citation

  • Costantini, Mauro & Lupi, Claudio & Popp, Stephan, 2007. "A Panel-CADF Test for Unit Roots," Economics & Statistics Discussion Papers esdp07039, University of Molise, Department of Economics.
    • Handle: RePEc:mol:ecsdps:esdp07039
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    File URL: http://web.unimol.it/progetti/repec/mol/ecsdps/ESDP07039.pdf
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    References listed on IDEAS

    as
    1. Quah, Danny, 1994. "Exploiting cross-section variation for unit root inference in dynamic data," Economics Letters, Elsevier, vol. 44(1-2), pages 9-19.
    2. John Y. Campbell & Pierre Perron, 1991. "Pitfalls and Opportunities: What Macroeconomists Should Know about Unit Roots," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 141-220, National Bureau of Economic Research, Inc.
    3. Choi, In, 2001. "Unit root tests for panel data," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 249-272, April.
    4. Matei Demetrescu & Uwe Hassler & Adina‐Ioana Tarcolea, 2006. "Combining Significance of Correlated Statistics with Application to Panel Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(5), pages 647-663, October.
    5. Karim M. Abadir & Jan R. Magnus, 2002. "Notation in econometrics: a proposal for a standard," Econometrics Journal, Royal Economic Society, vol. 5(1), pages 76-90, June.
    6. Anindya Banerjee, 1999. "Panel Data Unit Roots and Cointegration: An Overview," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(S1), pages 607-629, November.
    7. Anindya Banerjee & Massimiliano Marcellino & Chiara Osbat, 2005. "Testing for PPP: Should we use panel methods?," Empirical Economics, Springer, vol. 30(1), pages 77-91, January.
    8. repec:bla:obuest:v:61:y:1999:i:4:p:583-95 is not listed on IDEAS
    9. O'Connell, Paul G. J., 1998. "The overvaluation of purchasing power parity," Journal of International Economics, Elsevier, vol. 44(1), pages 1-19, February.
    10. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    11. MacKinnon, James G, 1996. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 601-618, Nov.-Dec..
    12. G. S. Maddala & Shaowen Wu, 1999. "A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(S1), pages 631-652, November.
    13. repec:bla:obuest:v:61:y:1999:i:0:p:607-29 is not listed on IDEAS
    14. Hansen, Bruce E., 1995. "Rethinking the Univariate Approach to Unit Root Testing: Using Covariates to Increase Power," Econometric Theory, Cambridge University Press, vol. 11(5), pages 1148-1171, October.
    15. Chang, Yoosoon & Song, Wonho, 2005. "Unit Root Tests for Panels in the Presence of Short-run and Long-run Dependencies: Nonlinear IV Approach with Fixed N and Large T," Working Papers 2002-06, Rice University, Department of Economics.
    16. Guglielmo Maria Caporale & Nikitas Pittis, 1999. "Unit Root Testing Using Covariates: Some Theory and Evidence," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(4), pages 583-595, November.
    17. 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.
    18. repec:cup:etheor:v:11:y:1995:i:5:p:1148-71 is not listed on IDEAS
    19. repec:bla:obuest:v:61:y:1999:i:0:p:631-52 is not listed on IDEAS
    20. Badi H. Baltagi & Chihwa Kao, 2000. "Nonstationary Panels, Cointegration in Panels and Dynamic Panels: A Survey," Center for Policy Research Working Papers 16, Center for Policy Research, Maxwell School, Syracuse University.
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    Cited by:

    1. Lupi, Claudio, 2009. "Covariate Augmented Dickey-Fuller Tests with R," Economics & Statistics Discussion Papers esdp09051, University of Molise, Department of Economics.
    2. Mauro Costantini & Claudio Lupi, 2013. "A Simple Panel-CADF Test for Unit Roots," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 75(2), pages 276-296, April.
    3. Lupi, Claudio, 2009. "Unit Root CADF Testing with R," Journal of Statistical Software, Foundation for Open Access Statistics, vol. 32(i02).

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    More about this item

    Keywords

    Unit root; Panel data; Cross-unit dependence;
    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
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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