A modified LLC panel unit root test of the PPP hypothesis

Research output: Contribution to journalArticle

Abstract

In a recent study,Westerlund (Empir Econ 37:517–531, 2009) shows that the performance of the popular LLC (Levin et al., J Econ 108:1–24, 2002) panel unit root test depends critically on the choice of lag truncation used when correcting for serial correlation, and that it is only when this parameter is set as a function of time that the power raises above size. The purpose of the current paper is to propose a modified test that does not suffer from this drawback. The new test is not only simpler to compute but also superior in terms of small-sample performance, which is illustrated using an example purchasing power parity for less developed countries.

Details

Authors
Organisations
Research areas and keywords

Subject classification (UKÄ) – MANDATORY

  • Economics

Keywords

  • Non-stationary panel data, Panel unit root test, Purchasing power parity, Cross-section dependence
Original languageEnglish
Pages (from-to)833-860
JournalEmpirical Economics
Volume44
Issue number2
Publication statusPublished - 2013
Publication categoryResearch
Peer-reviewedYes