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.

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Title A modified LLC panel unit root test of the PPP hypothesis
Author(s) Westerlund, Joakim
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
1435-8921
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
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
Collection: School of Accounting, Economics and Finance
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