A Modified LLC Panel Unit Root Test of the PPP Hypothesis

Sammanfattning

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.

Nyckelord

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

Publicerad i

Empirical Economics
2013, volym: 44, nummer: 2, sidor: 833-860

SLU författare

• Blomquist, Johan

  • Lunds Universitet

UKÄ forskningsämne

Nationalekonomi

Publikationens identifierare

• DOI: https://doi.org/10.1007/s00181-012-0552-x

Permanent länk till denna sida (URI)

https://res.slu.se/id/publ/86282