In this paper, we propose a simple extension to the panel case of the covariate-augmented Dickey-Fuller (CADF) test for unit roots developed in Hansen (1995). The panel test we propose is based on a P values combination approach that takes into account cross-section dependence. We show that the test has good size properties and gives power gains with respect to other popular panel approaches. An empirical application is carried out for illustration purposes on international data to test the purchasing power parity (PPP) hypothesis.

A simple panel-CADF test for unit roots

LUPI, Claudio
2013

Abstract

In this paper, we propose a simple extension to the panel case of the covariate-augmented Dickey-Fuller (CADF) test for unit roots developed in Hansen (1995). The panel test we propose is based on a P values combination approach that takes into account cross-section dependence. We show that the test has good size properties and gives power gains with respect to other popular panel approaches. An empirical application is carried out for illustration purposes on international data to test the purchasing power parity (PPP) hypothesis.
http://onlinelibrary.wiley.com/doi/10.1111/j.1468-0084.2012.00690.x/abstract
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11695/5603
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