Heteroskedasticity‐Robust Unit Root Testing for Trending Panels

Helmut Herwartz, Simone Maxand, Yabibal Walle

Research output: Contribution to journalArticleScientificpeer-review

Abstract

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.

Original languageEnglish
JournalJournal of Time Series Analysis
Volume40
Issue number5
Pages (from-to)649-664
Number of pages16
ISSN0143-9782
DOIs
Publication statusPublished - Sep 2019
MoE publication typeA1 Journal article-refereed

Fields of Science

  • 511 Economics
  • BREAK
  • CROSS-SECTIONAL DEPENDENCE
  • DEMAND
  • ENERGY-CONSUMPTION PERMANENT
  • GDP
  • Panel unit root tests
  • SHOCKS
  • TEMPORARY
  • TIME-SERIES
  • cross-sectional dependence
  • energy use per capita
  • near epoch dependence
  • non-stationary volatility

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