TESTING FOR UNIT ROOTS IN PANEL TIME-SERIES MODELS WITH MULTIPLE LEVEL BREAKS

Authors

  • JOAKIM WESTERLUND

    1. Deakin University
    Search for more papers by this author
    • A previous version of this paper was presented at a seminar at Lund University. The author would like to thank seminar participants and in particular Anindya Banerjee, David Edgerton, Rolf Larsson, Chris Orme and two anonymous referees for many valuable comments and suggestions. The author would also like to thank the Maastricht Research School of Economics of Technology and Organizations for its hospitality during a visit at the Department of Quantitative Economics at the University of Maastricht, where a part of this paper was written. Thank you also to the Jan Wallander and Tom Hedelius Foundation for financial support under research grant number W2006-0068:1.


  • Manuscript received 28.4.09; final version received 15.11.10.

Abstract

This paper proposes two new unit root tests that are appropriate in the presence of an unknown number of structural breaks in the level of the data. One is based on a single time series and the other is based on a panel of multiple series. For the estimation of the number of breaks and their locations, a simple procedure based on outlier detection is proposed. The limiting distributions of the tests are derived and evaluated in small samples using simulation experiments. The implementation of the tests is illustrated using as an example purchasing power parity.

Ancillary