PANIC in the Presence of Uncertainty about the Deterministic Trend

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Abstract

Most macroeconomic and financial panel variables are trending. However, because of the well-known power problem in the presence of incidental trends, many researchers gamble that their unit root test regressions can be ran without such trends, thereby running the risk of obtaining spurious results. This article takes one of the most general and popular panel unit root tests, known as PANIC, and shows how it can be modified to account for the uncertainty regarding the deterministic trend.

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  • Economics
Original languageEnglish
Pages (from-to)123-135
JournalOxford Bulletin of Economics and Statistics
Volume75
Issue number1
Publication statusPublished - 2013
Publication categoryResearch
Peer-reviewedYes