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MULTIPLE TESTING FOR OUTPUT CONVERGENCE

Published online by Cambridge University Press:  25 May 2012

Thomas Deckers  and
Christoph Hanck
Thomas Deckers*
Affiliation:
Bonn Graduate School of Economics
Christoph Hanck
Affiliation:
Rijksuniversiteit Groningen
*
Address correspondence to: Thomas Deckers, Bonn Graduate School of Economics (BGSE). Department of Economics, Kaiserstrasse 1, 53113 Bonn, Germany; e-mail: [email protected].
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Abstract

This paper tests for output convergence across n = 51 economies, employing the definition of Pesaran [Journal of Econometrics 138, 312–355 (2007)]. The definition requires output gaps to be stationary around a constant mean. But when all n(n − 1)/2 pairs of log per capita output gaps are considered, this results in more than 1,000 unit root tests to be conducted. Hence, because of the ensuing multiplicity of the testing problem, a nontrivial number of output gaps will be falsely declared to be stationary when each of the n(n − 1)/2 hypotheses is tested at some conventional level like 5%. To solve the problem, we employ recent multiple testing techniques that allow us to bound the expected fraction of false rejections at a desired level. Monte Carlo results illustrate the usefulness of the techniques. The empirical results show that the data do not support the notion of output convergence after controlling for multiplicity.

Keywords

Growth EmpiricsMultiple TestingConvergenceBootstrap
Type
Articles
Information
Macroeconomic Dynamics , Volume 18 , Issue 1 , January 2014 , pp. 199 - 214
Copyright
Copyright © Cambridge University Press 2012 

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