Modified CADF and CIPS Panel Unit Root Statistics with Standard Chi-squared and Normal Limiting Distributions

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Abstract

In an influential paper Pesaran (A Simple Panel Unit Root Test in Presence of Cross-Section Dependence, Journal of Applied Econometrics 22, 265–312, 2007) proposes two unit root tests for panels with a common factor structure. These are the CADF and CIPS test statistics, which are amongst the most popular test statistics in the literature. One feature of these statistics is that their limiting distributions are highly nonstandard, making for relatively complicated implementation. In this paper we take this feature as our starting point to develop modified CADF and CIPS test statistics that support standard chi-squared and normal inference.

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Research areas and keywords

Subject classification (UKÄ) – MANDATORY

  • Probability Theory and Statistics

Keywords

  • common factor., unit toot test, Panel data
Original languageEnglish
Pages (from-to)347–364
JournalOxford Bulletin of Economics and Statistics
Publication statusPublished - 2016 Jun
Publication categoryResearch
Peer-reviewedYes