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

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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