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A modified LLC panel unit root test of the PPP hypothesis

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Author

Summary, in English

In a recent study,Westerlund (Empir Econ 37:517–531, 2009) shows that the performance of the popular LLC (Levin et al., J Econ 108:1–24, 2002) panel unit root test depends critically on the choice of lag truncation used when correcting for serial correlation, and that it is only when this parameter is set as a function of time that the power raises above size. The purpose of the current paper is to propose a modified test that does not suffer from this drawback. The new test is not only simpler to compute but also superior in terms of small-sample performance, which is illustrated using an example purchasing power parity for less developed countries.

Publishing year

2013

Language

English

Pages

833-860

Publication/Series

Empirical Economics

Volume

44

Issue

2

Document type

Journal article

Publisher

Physica Verlag

Topic

  • Economics

Keywords

  • Non-stationary panel data
  • Panel unit root test
  • Purchasing power parity
  • Cross-section dependence

Status

Published

ISBN/ISSN/Other

  • ISSN: 0377-7332