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A Simple Panel‐CADF Test for Unit Roots *
Author(s) -
Costantini Mauro,
Lupi Claudio
Publication year - 2013
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/j.1468-0084.2012.00690.x
Subject(s) - purchasing power parity , econometrics , covariate , panel data , unit root test , simple (philosophy) , unit root , mathematics , extension (predicate logic) , statistics , economics , cointegration , computer science , exchange rate , philosophy , epistemology , macroeconomics , programming language
In this paper, we propose a simple extension to the panel case of the covariate‐augmented Dickey–Fuller (CADF) test for unit roots developed in Hansen (1995). The panel test we propose is based on a P values combination approach that takes into account cross‐section dependence. We show that the test has good size properties and gives power gains with respect to other popular panel approaches. An empirical application is carried out for illustration purposes on international data to test the purchasing power parity (PPP) hypothesis.