Engineering
4 years ago

New method accurately tests for unit root in correlated data panels.

SSRN Electronic Journal
Testing for a Unit Root in Panels with Dynamic Factors
Hyungsik Roger Moon, Benoît Perron

Paper Summary

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The article tests for a unit root in large panels with correlated data. They use common factors to model this correlation and develop unit root tests. These tests have a specific distribution under certain conditions. The researchers find that these tests are not effective when removing certain components. Monte Carlo simulations show how these tests perform in real-world scenarios.