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 and Chau, Frankie (2012) Some cautions on the use of nonlinear panel unit root tests: evidence from a modified series-specific non-linear panel unit-root test. Economic Modelling, 29 (3). pp. 810-816. ISSN 0264-9993

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Official URL: http://dx.doi.org/10.1016/j.econmod.2011.08.006

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.

Item Type: Article
Uncontrolled Keywords: Monte Carlo Simulation, Panel non-linear panel unit root test, Real exchange rate, ASEAN countries
Subjects: L100 Economics
Department: Faculties > Business and Law > Newcastle Business School > Business and Management
Depositing User: Chi Keung Lau
Date Deposited: 12 Sep 2013 12:55
Last Modified: 04 Dec 2015 13:07
URI: http://nrl.northumbria.ac.uk/id/eprint/13512

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