ON THE BREITUNG TEST FOR PANEL UNIT ROOTS AND LOCAL ASYMPTOTIC POWER

This note analyzes the local asymptotic power properties of a test proposed by Breitung (2000, in B. Baltagi (ed.), Nonstationary Panels, Panel Cointegration, and Dynamic Panels). We demonstrate that the Breitung test, like many other tests (including point optimal tests) for panel unit roots in the...

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Bibliographic Details
Published in:Econometric theory 2006-12, Vol.22 (6), p.1179-1190
Main Authors: Moon, H.R., Perron, B., Phillips, P.C.B.
Format: Article
Language:English
Subjects:
Alternatives
Approximation
Asymptotic theory
Decomposition
Econometrics
Economic models
Hypotheses
Law of large numbers
Natural satellites
Neighborhoods
NOTES AND PROBLEMS
Null hypothesis
Numerical analysis
Panel data
Power
Random variables
Root test
Significance tests
Statistical models
Studies
Time series
Unit root
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Summary:This note analyzes the local asymptotic power properties of a test proposed by Breitung (2000, in B. Baltagi (ed.), Nonstationary Panels, Panel Cointegration, and Dynamic Panels). We demonstrate that the Breitung test, like many other tests (including point optimal tests) for panel unit roots in the presence of incidental trends, has nontrivial power in neighborhoods that shrink toward the null hypothesis at the rate of n−1/4T−1 where n and T are the cross-section and time-series dimensions, respectively. This rate is slower than the n−1/2T−1 rate claimed by Breitung. Simulation evidence documents the usefulness of the asymptotic approximations given here.The authors thank Paolo Paruolo and a referee for comments on an earlier version of the paper. Phillips acknowledges partial support from a Kelly Fellowship and the NSF under grant SES 04-142254. Perron acknowledges financial support from FQRSC, SSHRC, and MITACS.
ISSN:0266-4666
1469-4360
DOI:10.1017/S0266466606060555