Events and Meetings of Italian Statistical Society, Advances in Latent Variables - Methods, Models and Applications

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A Nonlinear Panel Unit Root Test under Cross Section Dependence
Christian De Peretti, Mario Cerrato, Rolf Larsson, Nicholas Sarantis

Last modified: 2013-06-23


We propose a nonlinear heterogeneous panel unit root test for testing the null hypothesis of unit-roots processes against the alternative that allows a proportion of units to be generated by globally stationary ESTAR processes and a remaining nonzero proportion to be generated by unit root processes. The proposed test is simple to implement and accommodates cross sectional  dependence. We show that the distribution of the test statistic is free of nuisance parameters as (N;T) tends to infinity. Monte Carlo simulation shows that our test holds correct size and under the hypothesis that data are generated by globally stationary ESTAR processes has a better power than the recent test proposed in Pesaran (2007). Various applications are provided.

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