Panel LM unit-root tests with level shifts

    Authors

    K. S. Im; J. Lee;M. Tieslau

    Comments

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    Abbreviated Journal Title

    Oxf. Bull. Econ. Stat.

    Keywords

    MOVING AVERAGE MODELS; DETERMINISTIC TRENDS; Economics; Social Sciences, Mathematical Methods; Statistics &; Probability

    Abstract

    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.

    Journal Title

    Oxford Bulletin of Economics and Statistics

    Volume

    67

    Issue/Number

    3

    Publication Date

    1-1-2005

    Document Type

    Article

    Language

    English

    First Page

    393

    Last Page

    419

    WOS Identifier

    WOS:000229584200006

    ISSN

    0305-9049

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