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On Combining Evidence from Heteroskedasticity Robust Panel Unit Root Tests in Pooled Regressions

Faculty of Economics and Business Administration, University of Duisburg-Essen, 45141 Essen, Germany
Author to whom correspondence should be addressed.
J. Risk Financial Manag. 2019, 12(3), 117;
Received: 17 May 2019 / Revised: 4 July 2019 / Accepted: 9 July 2019 / Published: 12 July 2019
(This article belongs to the Special Issue Panel Data and Factor Models in Empirical Finance)
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Volatility break robust panel unit root tests (PURTs) recently proposed by Herwartz and Siedenburg (Computational Statistics & Data Analysis 2008, 53, 137–150) and Demetrescu and Hanck (Econometrics Letters 2012, 117, 10–13) have different performances under both the null and local alternatives. Common practice in empirical research is to apply multiple tests if none is uniformly superior. We show that this approach tends to produce contradictory evidence for the tests considered, making it unclear whether to reject the null. To address this problem, we advocate a combined testing procedure. Simulation evidence shows that the combined test has good size control and closely tracks the more powerful test. An empirical application reinvestigates whether there is a unit root in OECD inflation rates. We find evidence that inflation is stationary for long observation periods, but we cannot reject nonstationarity in most subsets of countries for the last three decades. View Full-Text
Keywords: panel unit root; inflation; nonstationary volatility; multiple testing panel unit root; inflation; nonstationary volatility; multiple testing

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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited (CC BY 4.0).

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Arnold, M.C.; Hanck, C. On Combining Evidence from Heteroskedasticity Robust Panel Unit Root Tests in Pooled Regressions. J. Risk Financial Manag. 2019, 12, 117.

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J. Risk Financial Manag. EISSN 1911-8074 Published by MDPI AG, Basel, Switzerland RSS E-Mail Table of Contents Alert
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