Misleading Inferences from Panel Unit Root Tests: A Comment
Review of International Economics, Vol. 14, No. 2, pp. 508-511, 2006
4 Pages Posted: 10 Sep 2010
Date Written: 2006
In their 2001 paper, Breuer, McNown, and Wallace argue that panel unit root tests are flawed in that the “all or nothing nature of these procedures may lead to serious misinterpretations of tests applied to mixed panels” (2001, p. 483). The authors propose an alternative test, the SURADF test, which allows for and estimates heterogeneous rates of convergence.We show that SURADF test results are highly sensitive to the selection of panel members. As such, application of the SURADF test seems to require a sound basis for panel member selection and a caveat that all results are panel-specific.
Keywords: Unit Root, Panel Unit Root, PPP, Purchasing Power Parity, SURADF
JEL Classification: C33
Suggested Citation: Suggested Citation