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Testing for Unit Roots in Short Dynamic Panels with Serially Correlated and Heteroscedastic Disturbance Terms

Author

Listed:
  • Hugo Kruiniger

    (Queen Mary, University of London)

  • Elias Tzavalis

    (Queen Mary, University of London)

Abstract

In this paper we introduce fixed-T unit root tests for panel data models with serially correlated and heteroscedastic disturbance terms. The tests are based on pooled least squares estimators for the autoregressive coefficient of the AR(1) panel model adjusted for their inconsistency. The proposed test statistics have normal limiting distributions when the cross-section dimension of the panel grows large, provided a condition involving the 4+δ-th order moments of the first differences of the data is satisfied. Monte Carlo evidence suggests that the tests have empirical size close to the nominal level and considerable power, even for MA(1) disturbance terms which exhibit strong negative autocorrelation.

Suggested Citation

  • Hugo Kruiniger & Elias Tzavalis, 2002. "Testing for Unit Roots in Short Dynamic Panels with Serially Correlated and Heteroscedastic Disturbance Terms," Working Papers 459, Queen Mary University of London, School of Economics and Finance.
    • Handle: RePEc:qmw:qmwecw:459
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    Citations

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    Cited by:

    1. Yiannis Karavias & Elias Tzavalis, 2016. "Local Power of Fixed-T Panel Unit Root Tests With Serially Correlated Errors and Incidental Trends," Journal of Time Series Analysis, Wiley Blackwell, vol. 37(2), pages 222-239, March.
    2. Yiannis Karavias & Elias Tzavalis, 2013. "The power performance of fixed-T panel unit root tests allowing for structural breaks," Discussion Papers 13/01, University of Nottingham, Granger Centre for Time Series Econometrics.
    3. Caterina Giannetti, 2015. "Unit roots and the dynamics of market shares: an analysis using an Italian banking micro-panel," Empirical Economics, Springer, vol. 48(2), pages 537-555, March.
    4. Yiannis Karavias & Elias Tzavalis, 2017. "Local power of panel unit root tests allowing for structural breaks," Econometric Reviews, Taylor & Francis Journals, vol. 36(10), pages 1123-1156, November.
    5. Yiannis Karavias & Elias Tzavalis, 2012. "The local power of fixed-T panel unit root tests allowing for serially correlated errors," Discussion Papers 12/01, University of Nottingham, Granger Centre for Time Series Econometrics.
    6. Josep Lluís Carrion‐i‐Silvestre & Kaddour Hadri, 2010. "Panel Data Unit Root Test With Fixed Time Dimension," Bulletin of Economic Research, Wiley Blackwell, vol. 62(3), pages 269-277, July.
    7. Artūras Juodis, 2018. "Rank based cointegration testing for dynamic panels with fixed T," Empirical Economics, Springer, vol. 55(2), pages 349-389, September.
    8. Yiannis Karavias & Elias Tzavalis, 2014. "Testing for unit roots in panels with structural changes, spatial and temporal dependence when the time dimension is finite," Discussion Papers 14/03, University of Nottingham, Granger Centre for Time Series Econometrics.
    9. Stephen Bond & Céline Nauges & Frank Windmeijer, 2005. "Unit roots: identification and testing in micro panels," CeMMAP working papers CWP07/05, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    10. Karavias, Yiannis & Tzavalis, Elias, 2012. "On the Local Power of Fixed T Panel Unit Root Tests with Serially Correlated Errors," MPRA Paper 43131, University Library of Munich, Germany.

    More about this item

    Keywords

    Panel data; Unit roots; Serial correlation; Heteroscedasticity; Central limit theorem;
    All these keywords.

    JEL classification:

    • 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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