Josep Lluís Carrion-i-Silvestre

GLS-BASED UNIT ROOT TESTS WITH MULTIPLE STRUCTURAL BREAKS UNDER BOTH THE NULL AND THE ALTERNATIVE HYPOTHESES

Perron (1989) introduced unit root tests valid when a break at a known date in the trend function of a time series is present, which are invariant to the magnitude of the shift in level and/or slope and to allow them under both the null and alternative hypotheses. The subsequent literature devised procedures valid in the case of an unknown break date. However, in doing so most, in particular the commonly used test of Zivot and Andrews (1992), assumed that if a break occurs it does so only under the alternative hypothesis of stationarity. This is undesirable for several reasons. Kim and Perron (2007) developed a methodology that allows a break at an unknown time under both the null and alternative hypotheses. When a break is present, the limit distribution of the test is the same as in the case of a known break date allowing increased power while maintaining the correct size. We extend their work in several directions: 1) we allow for an arbitrary number of changes in both the level and slope of the trend function; 2) we adopt the quasi-GLS detrending method advocated by Elliott et al. (1996) which permits tests that have local asymptotic power functions close to the local asymptotic Gaussian power envelope; 3) we consider a variety of tests, in particular the class of M-tests introduced in Stock (1999) and analyzed in Ng and Perron (2001).

Testing the Null of Cointegration With Structural Breaks

In this paper we propose an LM-Type statistic to test the null hypothesis of cointegration allowing for the possibility of a structural break, in both the deterministic and the cointegration vector. Our proposal focuses on the presence of endogenous regressors and analyses which estimation method provides better results. The test has been designed to be used as a complement to the usual non-cointegration tests in order to obtain stronger evidence of cointegration. We consider the cases of known and unknown break date. In the latter case, we show that minimizing the SSR results in a super-consistent estimator of the break fraction. Finally, the behaviour of the tests is studied through Monte Carlo experiments.

Testing for Hysteresis in Unemployment in OECD Countries: New Evidence using Stationarity Panel Tests with Breaks

This paper tests hysteresis effects in unemployment using panel data for 19 OECD countries covering the period 1956-2001. The tests exploit the cross-section variations of the series, and additionally, allow for a different number of endogenous breakpoints in the unemployment series. The critical values are simulated based on our specific panel sizes and time periods. The findings stress the importance of accounting for exogenous shocks in the series and give support to the natural-rate hypothesis of unemployment for the majority of the countries analyzed.

Unit root and stationarity tests’ wedding

Abstract In this paper the joint confirmation hypothesis (JCH) of unit root for the simultaneous use of the DF and KPSS tests, on the one hand, and the PP and KPSS tests, on the other, is studied. Critical values to be applied when testing this confirmation hypothesis are computed. The performance of this approach is analysed through a Monte Carlo experiment which shows that the use of these critical values produces a better characterization of the DGP when there is a unit root.

Evidence on the purchasing power parity in a panel of cities

Evidence is provided on the PPP hypothesis using a sample of 50 Spanish cities for a long time period through the application of panel data unit root tests. Although results suggest non-rejection of the PPP, short-run deviations – as measured by half-lives – indicate that real factors might be causing a slow rate of convergence to a common price index, even in highly integrated economies.

Testing for Panel Cointegration using Common Correlated Effects Estimators

Spurious regression analysis in panel data when the time series are cross-section dependent is analyzed in the paper. We show that consistent estimation of the long-run average parameter is possible once we control for cross-section dependence using cross-section averages in the spirit of the common correlated effects approach in Pesaran (2006). This result is used to design a panel cointegration test statistic accounting for cross-section dependence. The performance of the proposal is investigated in comparison with factor-based methods to control for cross-section dependence when strong, semi-weak and weak cross-section dependence may be present.

New evidence of the real interest rate parity for OECD countries using panel unit root tests with breaks

This paper tests for real interest parity (RIRP) among the nineteen major OECD countries over the period 1978:Q2-1998:Q4. The econometric methods applied consist of combining the use of several unit root or stationarity tests designed for panels valid under cross-section dependence and presence of multiple structural breaks. Our results strongly support the fulfillment of the weak version of the RIRP for the studied period once dependence and structural breaks are accounted for.

Testing panel cointegration with unobservable dynamic common factors that are correlated with the regressors

The paper proposes statistics to test the null hypothesis of no cointegration in panel data when common factors drive the cross‐sectional dependence. We focus on the case in which regressors and the common factors are correlated, although the uncorrelated case is also discussed. Both endogenous and strictly exogenous regressors are considered. The test statistics are shown to have limiting distributions independent of the common factors, making it possible to pool the individual statistics. Simulations indicate that the proposed procedures have good finite sample performance.

Unemployment Hysteresis in Transition Countries: Evidence Using Stationarity Panel Tests with Breaks

The authors test hysteresis versus the natural rate hypothesis in unemployment using panel data for transition countries covering the period 1991:1-2003:11. The advantages of the stationarity tests applied is that they exploit the cross-section variations of the series and, additionally, allow for a different number of endogenous breakpoints in the unemployment series. They do not impose independence on the panel members, so that the critical values are simulated based on their specific panel sizes and time periods. The findings stress the importance of accounting for exogenous shocks in the series and give support to the shifting natural-rate hypothesis of unemployment for all the countries analyzed. Copyright

Testing for real interest rate parity using panel stationarity tests with dependence: a note

In this paper we test for real interest parity (RIRP) among the 19 major OECD countries over the period 1978:Q1-2006:Q1 using both short- and long-run definitions of interest rates. Once the independence hypothesis is rejected among these series, we test for RIRP using panel data unit root and stationarity tests based on common factor models that allow for pervasive forms of dependence. Our results indicate that there is no evidence in favor of the weak version of the RIRP since one of the common factors that have been estimated is non-stationary.