Panel Lm Unit-Root Tests with Level Shifts

27 Pages Posted: 21 May 2005

See all articles by Kyung So Im

Kyung So Im

University of Central Florida - College of Business Administration

Junsoo Lee

University of Alabama - Department of Economics, Finance and Legal Studies

Margie Tieslau

University of North Texas - Department of Economics

Abstract

This paper proposes a new panel unit-root test based on the Lagrangian multiplier (LM) principle. We show that the asymptotic distribution of the new panel LM test is not affected by the presence of structural shifts. This result holds under a mild condition that N/T->k, where k is any finite constant. Our simulation study shows that the panel LM unit-root test is not only robust to the presence of structural shifts, but is more powerful than the popular Im, Pesaran and Shin (IPS) test. We apply our new test to the purchasing power parity (PPP) hypothesis and find strong evidence for PPP.

Suggested Citation

Im, Kyung So and Lee, Junsoo and Tieslau, Margie, Panel Lm Unit-Root Tests with Level Shifts. Oxford Bulletin of Economics & Statistics, Vol. 67, No. 3, pp. 393-419, June 2005, Available at SSRN: https://ssrn.com/abstract=726555

Kyung So Im (Contact Author)

University of Central Florida - College of Business Administration ( email )

PO Box 161400
Orlando, FL 32816
United States

Junsoo Lee

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
Tuscaloosa, AL Alabama 35487
United States
2053488978 (Phone)

Margie Tieslau

University of North Texas - Department of Economics ( email )

Denton, TX 76203-1457
United States

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