A Locally Optimal Test for No Unit Root in Cross-sectionally Dependent Panel Data

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Author(s)

Abstract

This paper develops a simple test for the null hypothesis of no unit root for panel data with cross-sectional dependence in the form of a common factor in the disturbance. We do not estimate the common factor but mop-up its effect by employing the same method as the one proposed in Pesaran (2007) in the unit root testing context. We show that our test is asymptotically locally optimal, although the optimality is not guaranteed under a wide range of the alternative.

Journal

  • Hitotsubashi Journal of Economics

    Hitotsubashi Journal of Economics 52(2), 165-184, 2011-12

    Hitotsubashi University

Codes

  • NII Article ID (NAID)
    110008799412
  • NII NACSIS-CAT ID (NCID)
    AA00207547
  • Text Lang
    ENG
  • Article Type
    departmental bulletin paper
  • ISSN
    0018-280X
  • Data Source
    NII-ELS  IR 
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