Heteroskedasticity-Robust Unit Root Testing for Trending Panels

38 Pages Posted: 27 Jun 2017

See all articles by Helmut Herwartz

Helmut Herwartz

University of Goettingen (Gottingen)

Simone Maxand

University of Goettingen (Gottingen)

Yabibal Mulualem Walle

University of Goettingen (Gottingen)

Date Written: June 26, 2017

Abstract

Standard panel unit root tests (PURTs) are not robust to breaks in innovation variances. Consequently, recent papers have proposed PURTs that are pivotal in the presence of volatility shifts. The applicability of these tests, however, has been restricted to cases where the data contains only an intercept, and not a linear trend. This paper proposes a new heteroskedasticity-robust PURT that works well for trending data. Under the null hypothesis, the test statistic has a limiting Gaussian distribution. Simulation results reveal that the test tends to be conservative but shows remarkable power in finite samples.

Keywords: Panel unit root tests, nonstationary volatility, cross-sectional dependence, near epoch dependence, energy use per capita

JEL Classification: C23, C12, Q40

Suggested Citation

Herwartz, Helmut and Maxand, Simone and Walle, Yabibal Mulualem, Heteroskedasticity-Robust Unit Root Testing for Trending Panels (June 26, 2017). Available at SSRN: https://ssrn.com/abstract=2992513 or http://dx.doi.org/10.2139/ssrn.2992513

Helmut Herwartz (Contact Author)

University of Goettingen (Gottingen) ( email )

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany

Simone Maxand

University of Goettingen (Gottingen) ( email )

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany

Yabibal Mulualem Walle

University of Goettingen (Gottingen) ( email )

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
37
Abstract Views
370
PlumX Metrics