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Modified CADF and CIPS Panel Unit Root Statistics with Standard Chi‐squared and Normal Limiting Distributions
Author(s) -
Westerlund Joakim,
Hosseinkouchack Mehdi
Publication year - 2016
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/obes.12127
Subject(s) - statistics , unit root , mathematics , unit root test , econometrics , inference , statistical hypothesis testing , statistical inference , limiting , computer science , engineering , cointegration , artificial intelligence , mechanical engineering
In an influential paper Pesaran (‘A simple panel unit root test in presence of cross‐section dependence’, Journal of Applied Econometrics , Vol. 22, pp. 265–312, 2007) proposes two unit root tests for panels with a common factor structure. These are the CADF and CIPS test statistics, which are amongst the most popular test statistics in the literature. One feature of these statistics is that their limiting distributions are highly non‐standard, making for relatively complicated implementation. In this paper, we take this feature as our starting point to develop modified CADF and CIPS test statistics that support standard chi‐squared and normal inference.