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ON THE BREITUNG TEST FOR PANEL UNIT ROOTS AND LOCALASYMPTOTIC POWER

Published online by Cambridge University Press:  03 November 2006

H.R. Moon ,
B. Perron  and
P.C.B. Phillips
H.R. Moon
Affiliation:
University of Southern California
B. Perron
Affiliation:
University of Montreal
P.C.B. Phillips
Affiliation:
Yale University
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Abstract

This note analyzes the local asymptotic power properties of a testproposed by Breitung (2000, in B. Baltagi(ed.), Nonstationary Panels, Panel Cointegration, andDynamic Panels). We demonstrate that the Breitung test,like many other tests (including point optimal tests) for panel unitroots in the presence of incidental trends, has nontrivial power inneighborhoods that shrink toward the null hypothesis at the rate ofn−1/4T−1where n and T are thecross-section and time-series dimensions, respectively. This rate isslower than then−1/2T−1rate claimed by Breitung. Simulation evidence documents theusefulness of the asymptotic approximations given here.The authors thank Paolo Paruolo and areferee for comments on an earlier version of the paper.Phillips acknowledges partial support from a Kelly Fellowshipand the NSF under grant SES 04-142254. Perron acknowledgesfinancial support from FQRSC, SSHRC, and MITACS.

Information

Type
NOTES AND PROBLEMS
Information
Econometric Theory , Volume 22 , Issue 6 , December 2006 , pp. 1179 - 1190
Copyright
© 2006 Cambridge University Press

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References

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