Panel LM unit-root tests with level shifts
Abbreviated Journal Title
Oxf. Bull. Econ. Stat.
MOVING AVERAGE MODELS; DETERMINISTIC TRENDS; Economics; Social Sciences, Mathematical Methods; Statistics &; Probability
This paper proposes a new panel unit-root test based on the Lagrangian multiplier (LM) principle. We show that the asymptotic distribution of the new panel LM test is not affected by the presence of structural shifts. This result holds under a mild condition that N/T --> k, where k is any finite constant. Our simulation study shows that the panel LM unit-root test is not only robust to the presence of structural shifts, but is more powerful than the popular Im, Pesaran and Shin (IPS) test. We apply our new test to the purchasing power parity (PPP) hypothesis and find strong evidence for PPP.
Oxford Bulletin of Economics and Statistics
"Panel LM unit-root tests with level shifts" (2005). Faculty Bibliography 2000s. 5292.