A Simple Test for Nonstationarity in Mixed Panels with Incidental Trends

Joakim Westerlund

doi:10.1016/j.econlet.2014.09.003

A Simple Test for Nonstationarity in Mixed Panels with Incidental Trends

Joakim Westerlund

Department of Economics

Research output: Contribution to journal › Article › peer-review

Abstract

Ng (2008) shows how the cross-sectional variance of the observed panel data can be used to construct a simple test for the proportion of non-stationary units. However, in the case with incidental trends the test is distorted. The present note shows how the distortions can be substantially reduced by the use of bias-adjustment. It also investigates the local power of the bias-adjusted test, which is shown to suffer from the same incidental trends problem previously only documented for conventional tt-tests.

Original language	English
Pages (from-to)	160-163
Journal	Economics Letters
Volume	125
Issue number	2
DOIs	https://doi.org/10.1016/j.econlet.2014.09.003
Publication status	Published - 2014

Subject classification (UKÄ)

Economics

Free keywords

Unit root test
Panel data
Incidental trends
Bias correction
Local asymptotic power

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10.1016/j.econlet.2014.09.003

Cite this

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title = "A Simple Test for Nonstationarity in Mixed Panels with Incidental Trends",

abstract = "Ng (2008) shows how the cross-sectional variance of the observed panel data can be used to construct a simple test for the proportion of non-stationary units. However, in the case with incidental trends the test is distorted. The present note shows how the distortions can be substantially reduced by the use of bias-adjustment. It also investigates the local power of the bias-adjusted test, which is shown to suffer from the same incidental trends problem previously only documented for conventional tt-tests.",

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AB - Ng (2008) shows how the cross-sectional variance of the observed panel data can be used to construct a simple test for the proportion of non-stationary units. However, in the case with incidental trends the test is distorted. The present note shows how the distortions can be substantially reduced by the use of bias-adjustment. It also investigates the local power of the bias-adjusted test, which is shown to suffer from the same incidental trends problem previously only documented for conventional tt-tests.

KW - Unit root test

KW - Panel data

KW - Incidental trends

KW - Bias correction

KW - Local asymptotic power

U2 - 10.1016/j.econlet.2014.09.003

DO - 10.1016/j.econlet.2014.09.003

M3 - Article

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VL - 125

SP - 160

EP - 163

JO - Economics Letters

JF - Economics Letters

IS - 2

ER -

A Simple Test for Nonstationarity in Mixed Panels with Incidental Trends

Abstract

Subject classification (UKÄ)

Free keywords

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