EconStor >
ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München >
CESifo Working Papers, CESifo Group Munich >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/26238
  
Title:Panel unit root tests in the presence of a multifactor error structure PDF Logo
Authors:Pesaran, Mohammad Hashem
Smith, L. Vanessa
Yamagata, Takashi
Issue Date:2008
Series/Report no.:CESifo working paper 2193
Abstract:This paper extends the cross sectionally augmented panel unit root test proposed by Pesaran (2007) to the case of a multifactor error structure. The basic idea is to exploit information regarding the unobserved factors that are shared by other time series in addition to the variable under consideration. Importantly, our test procedure only requires specification of the maximum number of factors, in contrast to other panel unit root tests based on principal components that require in addition the estimation of the number of factors as well as the factors themselves. Small sample properties of the proposed test are investigated by Monte Carlo experiments, which suggest that it controls well for size in almost all cases, especially in the presence of serial correlation in the error term, contrary to alternative test statistics. Empirical applications to Fisher’s inflation parity and real equity prices across different markets illustrate how the proposed test works in practice.
Subjects:panel unit root tests
cross section dependence
multi-factor residual structure
Fisher inflation parity
real equity prices
JEL:C12
C15
C22
C23
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

Files in This Item:
File Description SizeFormat
558342329.PDF558.31 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/26238

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.