Some cautions on the use of nonlinear panel unit root tests

Evidence from a modified series-specific non-linear panel unit-root test

Chi Keung Lau, Farrukh Suvankulov, Yongyang Su, Frankie Ho Chi Chau

Research output: Contribution to journalArticle

15 Citations (Scopus)

Abstract

The purpose of this paper is to examine the relevance of applying nonlinear panel unit root test to examine the non-linear mean reversion behaviors of real exchange rates. We find that nonlinear panel unit root test may achieve lower power performance as compared to its alternative of linear panel unit test when the data generating process does not contain significant non-linear components. This finding post cautions to researchers in modeling and testing real exchanges behavior. We also develop a modified series-specific nonlinear panel unit root test and find evidence in favor of purchasing power parity hypothesis for China's four ASEAN trading partners in the period of February 1997 to August 2009.
Original languageEnglish
Pages (from-to)810-816
Number of pages7
JournalEconomic Modelling
Volume29
Issue number3
Early online date19 Jan 2012
DOIs
Publication statusPublished - May 2012
Externally publishedYes

Fingerprint

Panel unit root tests
Testing
Purchasing power parity
China
Mean reversion
Modeling
Data generating process
Real exchange rate

Cite this

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abstract = "The purpose of this paper is to examine the relevance of applying nonlinear panel unit root test to examine the non-linear mean reversion behaviors of real exchange rates. We find that nonlinear panel unit root test may achieve lower power performance as compared to its alternative of linear panel unit test when the data generating process does not contain significant non-linear components. This finding post cautions to researchers in modeling and testing real exchanges behavior. We also develop a modified series-specific nonlinear panel unit root test and find evidence in favor of purchasing power parity hypothesis for China's four ASEAN trading partners in the period of February 1997 to August 2009.",
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Some cautions on the use of nonlinear panel unit root tests : Evidence from a modified series-specific non-linear panel unit-root test. / Lau, Chi Keung; Suvankulov, Farrukh ; Su, Yongyang ; Chau, Frankie Ho Chi.

In: Economic Modelling, Vol. 29, No. 3, 05.2012, p. 810-816.

Research output: Contribution to journalArticle

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