Modified CADF and CIPS Panel Unit Root Statistics with Standard Chi‐squared and Normal Limiting Distributions |
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| Authors: | Joakim Westerlund Mehdi Hosseinkouchack |
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| Affiliation: | 1. Department of Economics, Lund University, Sweden;2. Centre for Financial Econometrics, Deakin Business School, Deakin University, Melbourne Burwood Campus, Australia;3. Goethe University Frankfurt, RuW, Germany |
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| Abstract: | In an influential paper Pesaran (‘A simple panel unit root test in presence of cross‐section dependence’, Journal of Applied Econometrics, Vol. 22, pp. 265–312, 2007) proposes two unit root tests for panels with a common factor structure. These are the CADF and CIPS test statistics, which are amongst the most popular test statistics in the literature. One feature of these statistics is that their limiting distributions are highly non‐standard, making for relatively complicated implementation. In this paper, we take this feature as our starting point to develop modified CADF and CIPS test statistics that support standard chi‐squared and normal inference. |
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