Synergy between an Improved Covariate Unit Root Test and Cross‐Sectionally Dependent Panel Data Unit Root Tests

25 Pages Posted: 28 Sep 2015

See all articles by Kaddour Hadri

Kaddour Hadri

Queen's University Belfast

Eiji Kurozumi

Hitotsubashi University - Faculty of Economics

Daisuke Yamazaki

Hitotsubashi University

Date Written: December 2015

Abstract

This paper proposes the use of an improved covariate unit root test which exploits the cross‐sectional dependence information when the panel data null hypothesis of a unit root is rejected. More explicitly, to increase the power of the test, we suggest the utilization of more than one covariate and offer several ways to select the ‘best’ covariates from the set of potential covariates represented by the individuals in the panel. Employing our methods, we investigate the Prebish‐Singer hypothesis for nine commodity prices. Our results show that this hypothesis holds for all but the price of petroleum.

Suggested Citation

Hadri, Kaddour and Kurozumi, Eiji and Yamazaki, Daisuke, Synergy between an Improved Covariate Unit Root Test and Cross‐Sectionally Dependent Panel Data Unit Root Tests (December 2015). The Manchester School, Vol. 83, Issue 6, pp. 676-700, 2015, Available at SSRN: https://ssrn.com/abstract=2665844 or http://dx.doi.org/10.1111/manc.12080

Kaddour Hadri (Contact Author)

Queen's University Belfast ( email )

25 University Square
Belfast, BT7 1NN
Ireland

Eiji Kurozumi

Hitotsubashi University - Faculty of Economics ( email )

Tokyo, 186-8601
Japan

Daisuke Yamazaki

Hitotsubashi University

2-1 Naka Kunitachi-shi
Tokyo 186-8601
Japan

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