The Performance of Panel Unit Root and Stationarity Tests: Results from a Large Scale Simulation Study

Hlouskova, Jaroslava; Wagner, Martin (March 2005). The Performance of Panel Unit Root and Stationarity Tests: Results from a Large Scale Simulation Study (Discussion Papers 05-03). Bern: Department of Economics

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This paper presents results concerning the size and power of first generation panel unit
root and stationarity tests obtained from a large scale simulation study, with in total
about 290 million test statistics computed. The tests developed in the following papers
are included: Levin, Lin and Chu (2002), Harris and Tzavalis (1999), Breitung (2000),
Im, Pesaran and Shin (1997 and 2003), Maddala and Wu (1999), Hadri (2000), and Hadri
and Larsson (2002). Our simulation set-up is designed to address i.a. the following issues.
First, we assess the performance as a function of the time and the cross-section dimension.
Second, we analyze the impact of positive MA roots on the test performance. Third, we
investigate the power of the panel unit root tests (and the size of the stationarity tests)
for a variety of first order autoregressive coefficients. Fourth, we consider both of the two
usual specifications of deterministic variables in the unit root literature.

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