Testing for Unit Roots in Short Dynamic Panels with Serially Correlated and Heteroscedastic Disturbance Terms

U of London Queen Mary Economics Working Paper No. 459

24 Pages Posted: 24 Jun 2002

See all articles by Hugo Kruiniger

Hugo Kruiniger

Durham University

Elias Tzavalis

University of London - Queen Mary - Department of Economics

Date Written: May 2002

Abstract

In this paper we introduce fixed-T unit root tests for panel data models with serially correlated and heteroscedastic disturbance terms. The tests are based on pooled least squares estimators for the autoregressive coefficient of the AR(1) panel model adjusted for their inconsistency. The proposed test statistics have normal limiting distributions when the cross-section dimension of the panel grows large, provided a condition involving the 4+delta-th order moments of the first differences of the data is satisfied. Monte Carlo evidence suggests that the tests have empirical size close to the nominal level and considerable power, even for MA(1) disturbance terms which exhibit strong negative autocorrelation.

JEL Classification: C22, C23

Suggested Citation

Kruiniger, Hugo and Tzavalis, Elias, Testing for Unit Roots in Short Dynamic Panels with Serially Correlated and Heteroscedastic Disturbance Terms (May 2002). U of London Queen Mary Economics Working Paper No. 459. Available at SSRN: https://ssrn.com/abstract=317162 or http://dx.doi.org/10.2139/ssrn.317162

Hugo Kruiniger (Contact Author)

Durham University ( email )

Durham, DH1 3HY
United Kingdom
00441913346334 (Phone)

Elias Tzavalis

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/

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