Panel Stationarity Test with Structural Breaks

25 Pages Posted: 27 Mar 2008

See all articles by Kaddour Hadri

Kaddour Hadri

Durham Business School

Yao Rao

affiliation not provided to SSRN

Date Written: 0000

Abstract

In this paper, we extend the heterogeneous panel data stationarity test of Hadri [Econometrics Journal, Vol. 3 (2000) pp. 148-161] to the cases where breaks are taken into account. Four models with different patterns of breaks under the null hypothesis are specified. Two of the models have been already proposed by Carrion-i-Silvestre et al. [Econometrics Journal, Vol. 8 (2005) pp. 159-175]. The moments of the statistics corresponding to the four models are derived in closed form via characteristic functions. We also provide the exact moments of a modified statistic that do not asymptotically depend on the location of the break point under the null hypothesis. The cases where the break point is unknown are also considered. For the model with breaks in the level and no time trend and for the model with breaks in the level and in the time trend, Carrion-i-Silvestre et al. [Econometrics Journal, Vol. 8 (2005) pp. 159-175] showed that the number of breaks and their positions may be allowed to differ across individuals for cases with known and unknown breaks. Their results can easily be extended to the proposed modified statistic. The asymptotic distributions of all the statistics proposed are derived under the null hypothesis and are shown to be normally distributed. We show by simulations that our suggested tests have in general good performance in finite samples except the modified test. In an empirical application to the consumer prices of 22 OECD countries during the period from 1953 to 2003, we found evidence of stationarity once a structural break and cross-sectional dependence are accommodated.

Suggested Citation

Hadri, Kaddour and Rao, Yao, Panel Stationarity Test with Structural Breaks (0000). Oxford Bulletin of Economics and Statistics, Vol. 70, Issue 2, pp. 245-269, April 2008, Available at SSRN: https://ssrn.com/abstract=1112178 or http://dx.doi.org/10.1111/j.1468-0084.2008.00502.x

Kaddour Hadri (Contact Author)

Durham Business School ( email )

Mill Hill Lane
Durham, Durham DH1 3LB
United Kingdom

Yao Rao

affiliation not provided to SSRN

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