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Nonparametric rank tests for non-stationary panels

Version 2 2024-06-03, 22:41
Version 1 2015-08-31, 15:28
journal contribution
posted on 2024-06-03, 22:41 authored by PL Pedroni, TJ Vogelsang, M Wagner, Joakim WesterlundJoakim Westerlund
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.

History

Journal

Journal of econometrics

Volume

185

Pagination

378-391

Location

Amsterdam, The Netherlands

ISSN

0304-4076

eISSN

1872-6895

Language

eng

Publication classification

C1 Refereed article in a scholarly journal, C Journal article

Copyright notice

2015, Elsevier

Issue

2

Publisher

Elsevier