2004, 2003-2004, English, Article, Working paper edition: On The Panel Unit Root Tests Using Nonlinear Instrumental Variables Im, Kyung So; Pesaran, M. Hashem

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Physical Description
  • 292157 bytes, application/​pdf
  • Working Paper
Published
  • 2004-06-16T16:05:36Z
  • 2003-10
Language
  • English

Edition details

Title
  • On The Panel Unit Root Tests Using Nonlinear Instrumental Variables
Author
  • Im, Kyung So
  • Pesaran, M. Hashem
Published
  • 2004-06-16T16:05:36Z
  • 2003-10
Physical Description
  • 292157 bytes, application/​pdf
  • Working Paper
Subjects
Notes
  • This paper re-examines the panel unit root tests proposed by Chang (2002). She establishes asymptotic independence of the t-statistics when integrable functions of lagged dependent variable are used as instruments even if the original series are cross sectionally dependent. She claims that her non-linear instrumental variable (NIV) panel unit root test is valid under general error cross correlations for any N (the cross section dimension) as T (the time dimension of the panel) tends to infinity. These results are largely due to her particular choice of the error correlation matrix which results in weak cross section dependence. Also, the asymptotic independence property of the t- statistics disappears when Chang's modified instruments are used. Using a common factor model with a sizeable degree of cross section correlations, we show that Chang's NIV panel unit root test suffers from gross size distortions, even when N is small relative to T.
Language
  • English
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