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Rethinking the univariate approach to panel unit root testing: using covariates to resolve the incidental trend problem

Westerlund, Joakim 2015, Rethinking the univariate approach to panel unit root testing: using covariates to resolve the incidental trend problem, Journal of business and economic statistics, vol. 33, no. 3, pp. 430-443, doi: 10.1080/07350015.2014.962697.

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Title Rethinking the univariate approach to panel unit root testing: using covariates to resolve the incidental trend problem
Author(s) Westerlund, Joakim
Journal name Journal of business and economic statistics
Volume number 33
Issue number 3
Start page 430
End page 443
Total pages 14
Publisher Taylor & Francis
Place of publication London, Eng.
Publication date 2015
ISSN 0735-0015
1537-2707
Keyword(s) Covariates
Incidental trends
Local asymptotic power
Panel data
Unit root test
Social Sciences
Science & Technology
Physical Sciences
Economics
Social Sciences, Mathematical Methods
Statistics & Probability
Business & Economics
Mathematical Methods In Social Sciences
Mathematics
CROSS-SECTION DEPENDENCE
POWER
Summary In an influential article, Hansen showed that covariate augmentation can lead to substantial power gains when compared to univariate tests. In this article, we ask if this result extends also to the panel data context? The answer turns out to be yes, which is maybe not that surprising. What is surprising, however, is the extent of the power gain, which is shown to more than outweigh the well-known power loss in the presence of incidental trends. That is, the covariates have an order effect on the neighborhood around unity for which local asymptotic power is negligible.
Language eng
DOI 10.1080/07350015.2014.962697
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, American Statistical Association
Persistent URL http://hdl.handle.net/10536/DRO/DU:30077703

Document type: Journal Article
Collection: Department of Economics
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