Testing for Panel Unit Roots under General Cross-sectional Dependence

Abstract

In this article, we generalize four tests of multivariate linear hypothesis to panel data unit root testing. The test statistics are invariant to certain linear transformations of data and therefore simulated critical values may conveniently be used. It is demonstrated that all four tests remains well behaved in cases of where there are heterogeneous alternatives and cross-correlations between marginal variables. A Monte Carlo simulation is included to compare and contrast the tests with two well-established ones.

Keywords:

• Invariance
• Linear hypothesis
• Panel data
• Unit roots

Mathematics Subject Classification:

• 03; 62F04