Research

Local asymptotic power of the Im-Pesaran-Shin panel unit root test and the impact of initial observations


Reference:

Harris, D., Harvey, D. I., Leybourne, S. and Sakkas, N., 2010. Local asymptotic power of the Im-Pesaran-Shin panel unit root test and the impact of initial observations. Econometric Theory, 26 (1), pp. 311-324.

Related documents:

[img]
Preview
PDF (Harris_Harvey_Leybourne_Sakkas_2010) - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader
Download (139kB) | Preview

    Official URL:

    http://dx.doi.org/10.1017/S0266466609090768

    Abstract

    In this note we derive the local asymptotic power function of the standardized averaged Dickey–Fuller panel unit root statistic of Im, Pesaran, and Shin (2003, Journal of Econometrics, 115, 53–74), allowing for heterogeneous deterministic intercept terms. We consider the situation where the deviation of the initial observation from the underlying intercept term in each individual time series may not be asymptotically negligible. We find that power decreases monotonically as the magnitude of the initial conditions increases, in direct contrast to what is usually observed in the univariate case. Finite-sample simulations confirm the relevance of this result for practical applications, demonstrating that the power of the test can be very low for values of T and N typically encountered in practice.

    Details

    Item Type Articles
    CreatorsHarris, D., Harvey, D. I., Leybourne, S. and Sakkas, N.
    DOI10.1017/S0266466609090768
    DepartmentsFaculty of Humanities & Social Sciences > Economics
    RefereedYes
    StatusPublished
    ID Code32073

    Export

    Actions (login required)

    View Item

    Document Downloads

    More statistics for this item...