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Title:The effects of variance breaks on homogenous panel unit root tests PDF Logo
Authors:Herwartz, Helmut
Siedenburg, Florian
Issue Date:2009
Series/Report no.:Economics working paper / Christian-Albrechts-Universität Kiel, Department of Economics 2009,07
Abstract:Noting that many economic variables display occasional shifts in their second order moments, we investigate the performance of homogenous panel unit root tests in the presence of permanent volatility shifts. It is shown that in this case, panel unit root tests derived under time invariant innovation variances lose control over actual significance levels while the test proposed by Herwartz and Siedenburg (2008) retains size control. A simulation study of the finite sample properties confirms the theoretical results in finite samples. As an empirical illustration, we reassess evidence on the Fisher hypothesis.
Subjects:Panel unit root tests
variance breaks
cross sectional dependence
Fisher hypothesis
JEL:C23
C12
E40
Document Type:Working Paper
Appears in Collections:Economics Working Papers, Department of Economics, CAU Kiel

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