Heteroskedasticity-Robust Unit Root Testing for Trending Panels

Herwartz, Helmut / Simone Maxand / Yabibal M. Walle
External Publications (2019)

in: Journal of Time Series Analysis 40 (5), 629-866

DOI: 10.1111/jtsa.12446

Time-varying volatility and linear trends are common features of several macroeconomic time series. Recent articles have proposed panel unit root tests (PURTs) that are pivotal in the presence of volatility shifts, excluding linear trends, however. This article proposes a new PURT that works well for data that is both heteroskedastic and trending. Under the null hypothesis, the test statistic has a limiting Gaussian distribution. We derive the local asymptotic power to underpin the consistency of the test statistic. Simulation results reveal that the test performs well in small samples. As an empirical illustration, we examine the stationarity of energy use per capita in OECD economies. While the series are in general difference stationary, they could also be considered as trend stationary for specific time spans.

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