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Testing for unit roots in three-dimensional heterogeneous panels in the presence of cross-sectional dependence

By Monica Giulietti, Jesus Otero and Jeremy Smith

Abstract

This paper extends the cross-sectionally augmented IPS (CIPS) test of Pesaran (2006) to a three-dimensional (3D) panel. This 3D-CIPS test is correctly sized in the presence of cross-sectional dependency. Comparing its power performance to that of a bootstrapped IPS (BIPS) test, we find that the BIPS test invariably dominates, although for high levels of cross-sectional dependency the 3D-CIPS test can out-perform the BIPS test

Topics: HB
Publisher: University of Warwick, Department of Economics
Year: 2006
OAI identifier: oai:wrap.warwick.ac.uk:1428

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