A Bayesian Analysis of Unit Roots in Panel Data Models with Cross-Sectional Dependence

14 Pages Posted: 29 Jan 2009

See all articles by Loukia Meligkotsidou

Loukia Meligkotsidou

National and Kapodistrian University of Athens

Elias Tzavalis

University of London - Queen Mary - Department of Economics

Ioannis D. Vrontos

Athens University of Economics and Business

Date Written: January 29, 2009

Abstract

In this paper a Bayesian approach to unit root testing for panel data models is proposed based on the comparison of stationary autoregressive models with and without individual determinist trends, with their counterpart models with unit autoregressive roots. This is done under cross-sectional dependence among the units of the panel. Simulation experiments are conducted with the aim to assess the performance of the suggested inferential procedure, as well as to investigate if the Bayesian model comparison approach can distinguish unit root models from stationary autoregressive models under or without cross-section dependence. The approach is applied to real GDP data for a panel of G7.

Keywords: Autoregressive models, Bayesian inference, Cross-sectional dependence, Model comparison, Panel data, Unit root testing

JEL Classification: C11, C22, G10

Suggested Citation

Meligkotsidou, Loukia and Tzavalis, Elias and Vrontos, Ioannis D., A Bayesian Analysis of Unit Roots in Panel Data Models with Cross-Sectional Dependence (January 29, 2009). Available at SSRN: https://ssrn.com/abstract=1334766 or http://dx.doi.org/10.2139/ssrn.1334766

Loukia Meligkotsidou

National and Kapodistrian University of Athens ( email )

5 Stadiou Strt
Athens, 12131
Greece

Elias Tzavalis (Contact Author)

University of London - Queen Mary - Department of Economics ( email )

Mile End Road
London, E1 4NS
United Kingdom

HOME PAGE: http//www.qmw.ac.uk/~ugte184/

Ioannis D. Vrontos

Athens University of Economics and Business ( email )

76 Patission Street
Athens, 104 34
Greece

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