publication . Article . 2009

Testing for Unit Roots in Small Panels with Short-run and Long-run Cross-sectional Dependencies

Yoosoon Chang; Wonho Song;
Open Access
  • Published: 01 Jan 2009 Journal: Review of Economic Studies, volume 76, pages 903-935 (issn: 0034-6527, eissn: 1467-937X, Copyright policy)
  • Publisher: Oxford University Press (OUP)
An IV approach, using as instruments non-linear transformations of the lagged levels, is explored to test for unit roots in panels with general dependency and heterogeneity across cross-sectional units. We allow not only for the cross-sectional dependencies of innovations, but also for the presence of co-integration across cross-sectional levels. Unbalanced panels and panels with differing individual short-run dynamics and cross-sectionally related dynamics are also permitted. We also more carefully formulate the unit root hypotheses in panels. In particular, using order statistics, we make it possible to test for and against the presence of unit roots in some o...
free text keywords: Economics and Econometrics, Econometrics, Mathematics, Short run, Unit root, Order statistic, Statistic, Purchasing power parity, Computation, Statistics
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