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Testing for unit roots in panel data using a wavelet ratio method
Linnaeus University, School of Business and Economics, Department of Economics and Statistics. (Nationalekonomi och Statistik)
Linnaeus University, School of Business and Economics, Department of Economics and Statistics. (Nationalekonomi och Statistik)ORCID iD: 0000-0002-3416-5896
2013 (English)In: Computational Economics, ISSN 0927-7099, E-ISSN 1572-9974, Vol. 41, no 1, 59-69 p.Article in journal (Refereed) Published
Abstract [en]

For testing unit root in single time series, most of the tests concentrate in the time domain. Recently, Fan and Gracay (2010) proposed a wavelet ratio test which took advantage of the information from frequency domain by using wavelet spectrum decompose methodology. This test shows a better power over many time domain based unit root test including the Dickey-Fuller (1979) type of test in the univariate time series case. On the other hand, various unit root tests in multivariate time series appear since the pioneering work of Levin and Lin (1993). Among them, the Im-Pesaran-Shin (IPS) (1997) test is widely used for its straightforward implementation and robustness to heterogeneity. The IPS test is a group mean test which uses the average of the test statistics for each single series. As the test statistics in each series can be flexible, this paper will apply the wavelet ratio statistic to give a comparison with the test by using Dickey-Fuller  statistic in the single series. Simulation result shows a gain in power by employing the wavelet ratio test instead of the Dickey-Fuller  statistic in the panel data case. As the IPS test is sensitive to the cross sectional dependence, we further compare the robustness of both test statistics to the cross sectional. Finally we apply a residual based wavestrapping methodology to reduce the over biased size problem brought up by the cross correlation for both test statistics. 

Place, publisher, year, edition, pages
2013. Vol. 41, no 1, 59-69 p.
Keyword [en]
Wavelet, panel data, unit root, cross sectional dependence, wavestrapping
National Category
Economics
Research subject
Economy, Economics
Identifiers
URN: urn:nbn:se:lnu:diva-16200DOI: 10.1007/s10614-011-9302-yISI: 000313645200004OAI: oai:DiVA.org:lnu-16200DiVA: diva2:466886
Available from: 2011-12-16 Created: 2011-12-16 Last updated: 2016-12-14Bibliographically approved

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Li, YushuShukur, Ghazi
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CiteExportLink to record
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Cite
Citation style
  • apa
  • harvard1
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  • modern-language-association-8th-edition
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