Nonparametric rank tests for non-stationary panels

Pedroni, Peter L., Vogelsang, Timothy J., Wagner, Martin and Westerlund, Joakim 2015, Nonparametric rank tests for non-stationary panels, Journal of econometrics, vol. 185, no. 2, pp. 378-391, doi: 10.1016/j.jeconom.2014.08.013.

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Title Nonparametric rank tests for non-stationary panels
Author(s) Pedroni, Peter L.
Vogelsang, Timothy J.
Wagner, Martin
Westerlund, JoakimORCID iD for Westerlund, Joakim
Journal name Journal of econometrics
Volume number 185
Issue number 2
Start page 378
End page 391
Total pages 14
Publisher Elsevier
Place of publication Amsterdam, The Netherlands
Publication date 2015-04-01
ISSN 0304-4076
Keyword(s) Cointegration
Cross-sectional dependence
Nonparametric rank tests
Time series panel
Unit roots
Social Sciences
Science & Technology
Physical Sciences
Mathematics, Interdisciplinary Applications
Social Sciences, Mathematical Methods
Business & Economics
Mathematical Methods In Social Sciences
Summary We develop a set of nonparametric rank tests for non-stationary panels based on multivariate variance ratios which use untruncated kernels. As such, the tests do not require the choice of tuning parameters associated with bandwidth or lag length and also do not require choices with respect to numbers of common factors. The tests allow for unrestricted cross-sectional dependence and dynamic heterogeneity among the units of the panel, provided simply that a joint functional central limit theorem holds for the panel of differenced series. We provide a discussion of the relationships between our setting and the settings for which first- and second generation panel unit root tests are designed. In Monte Carlo simulations we illustrate the small-sample performance of our tests when they are used as panel unit root tests under the more restrictive DGPs for which panel unit root tests are typically designed, and for more general DGPs we also compare the small-sample performance of our nonparametric tests to parametric rank tests. Finally, we provide an empirical illustration by testing for income convergence among countries.
Language eng
DOI 10.1016/j.jeconom.2014.08.013
Field of Research 150202 Financial Econometrics
Socio Economic Objective 919999 Economic Framework not elsewhere classified
HERDC Research category C1 Refereed article in a scholarly journal
ERA Research output type C Journal article
Copyright notice ©2015, Elsevier
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