A modified LLC panel unit root test of the PPP hypothesis

Westerlund, Joakim and Blomquist, Johan 2013, A modified LLC panel unit root test of the PPP hypothesis, Empirical economics, vol. 44, no. 2, pp. 833-860, doi: 10.1007/s00181-012-0552-x.

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Title A modified LLC panel unit root test of the PPP hypothesis
Author(s) Westerlund, JoakimORCID iD for Westerlund, Joakim orcid.org/0000-0002-8030-5706
Blomquist, Johan
Journal name Empirical economics
Volume number 44
Issue number 2
Start page 833
End page 860
Total pages 28
Publisher Springer
Place of publication Heidelberg, Germany
Publication date 2013-04
ISSN 0377-7332
Keyword(s) cross-section dependence
non-stationary panel data
panel unit root test
purchasing power parity
Summary In a recent study, Westerlund (Empir Econ 37:517–531, 2009) shows that the performance of the popular LLC (Levin et al., J Econ 108:1–24, 2002) panel unit root test depends critically on the choice of lag truncation used when correcting for serial correlation, and that it is only when this parameter is set as a function of time that the power raises above size. The purpose of the current paper is to propose a modified test that does not suffer from this drawback. The new test is not only simpler to compute but also superior in terms of small-sample performance, which is illustrated using an example purchasing power parity for less developed countries.
Language eng
DOI 10.1007/s00181-012-0552-x
Field of Research 150202 Financial Econometrics
Socio Economic Objective 970114 Expanding Knowledge in Economics
HERDC Research category C1 Refereed article in a scholarly journal
HERDC collection year 2013
Copyright notice ©2013, Springer
Persistent URL http://hdl.handle.net/10536/DRO/DU:30057289

Document type: Journal Article
Collections: Faculty of Business and Law
School of Accounting, Economics and Finance
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