Testing for stationarity in heterogeneous panel data in the presence of cross-section dependence

Abstract

The panel variant of the KPSS tests developed by Hadri [Hadri, K., 2000, Testing for stationarity in heterogeneous panels. Econometrics Journal, 3, 148–161] for the null of stationarity suffers from size distortions in the presence of cross-section dependence. However, applying the bootstrap methodology, we find that these tests are approximately correctly sized.

Keywords:

• Heterogeneous dynamic panels
• Monte Carlo
• Bootstrap
• Unit root tests
• cross-section dependence

JEL Classification :

• C12
• C15
• C22
• C23

Acknowledgements

The authors would like to thank participants at the 13th International Panel Data Conference held in Cambridge, United Kingdom, and an anonymous referee for useful comments and suggestions.