The Local Power of the CADF and CIPS Panel Unit Root Tests

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Abstract

Very little is known about the local power of second generation panel unit root tests that are robust to cross-section dependence. This article derives the local asymptotic power functions of the cross-section argumented Dickey–Fuller Cross-section Augmented Dickey-Fuller (CADF) and CIPS tests of Pesaran (2007), which are among the most popular tests around.

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Subject classification (UKÄ) – MANDATORY

  • Economics

Keywords

  • crosssectional dependence, cross-sectional averages, Panel unit root test, common factor model, local asymptotic power
Original languageEnglish
Pages (from-to)845-870
JournalEconometric Reviews
Volume35
Issue number5
Publication statusPublished - 2016
Publication categoryResearch
Peer-reviewedYes