Social and Behavioral Sciences Commons^™

Bootstrap Unit Root Tests In Panels With Cross-Sectional Dependency, Yoosoon Chang

Cowles Foundation Discussion Papers

We apply bootstrap methodology to unit root tests for dependent panels with N cross-sectional units and T time series observations. More specifically, we let each panel be driven by a general linear process which may be different across cross-sectional units, and approximate it by a finite order autoregressive integrated process of order increasing with T . As we allow the dependency among the innovations generating the individual panels, we construct our unit root tests from the estimation of the system of the entire N panels. The limit distributions of the tests are derived by passing T to infinity, with N …