NHARVEY: Stata module to perform Nyblom-Harvey panel test of common stochastic trends
Christopher F Baum
nharvey estimates one form of the test of common stochastic trends developed by Nyblom and Harvey (NH, 2000). The test is of the validity of a specified value of the rank of the covariance matrix of the disturbances driving the multivariate random walk. This rank is equal to the number of common trends, or levels, in the series. As NH show, "this test is very simple insofar as it does not require any models to be estimated, even if serial correlation is present." (p.176) The special case calculated by nharvey is that of the rank (K in NH' terms) equalling zero, which may be taken as a test that there are no common trends among the variables. NH state that "common trends imply cointegration, and vice versa." Thus a failure to reject the null hypothesis of zero common trends is also an indication that the variables do not form a cointegrated combination. The test may be considered as a generalization of the Nyblom and Makelainen (1983) and Kwiatkowski et al. (1992, kpss) univariate tests for stationarity of a series. Those tests are of the null hypothesis that the series is stationary, or stationary around a deterministic trend, against the alternative that a random walk component is present. nharvey considers the same structure in the context of multiple time series.
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