The Asymptotic Distribution of the CADF Unit Root Test in the Presence of Heterogeneous AR(p) Errors

Research output: Contribution to journalArticle

Abstract

The CADF test of Pesaran (A Simple Panel Unit Root Test in Presence of Cross-Section
Dependence, Journal of Applied Econometrics 22, 265–312, 2007) are among the most popular
univariate tests for cross-section correlated panels around. Yet, the existing asymptotic
analysis of this test statistic is limited to a model in which the errors are assumed to
follow a simple AR(1) structure with homogenous autoregressive coefficients. One reason
for this is that the model involves an intricate identification issue, as both the serial
and cross-section correlation structures of the errors are unobserved. The purpose of the
current paper is to tackle this issue and in so doing extend the existing analysis to the
case of AR(p) errors with possibly heterogeneous coefficients.

Details

Authors
Organisations
Research areas and keywords

Subject classification (UKÄ) – MANDATORY

  • Economics

Keywords

  • Unit root test, error serial correlation, common factor, cross-section augmentation.
Original languageEnglish
Pages (from-to)303-317
JournalStatistical Papers
Volume57
Issue number2
Publication statusPublished - 2016
Publication categoryResearch
Peer-reviewedYes