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UsersGuide:AdvancedUnivariateAnalysis:UnivariateTimeSeriesAnalysis:PanelUnitRootTesting
PanelUnitRootTesting
PerformingPanelUnitRootTestsinEViews
PanelUnitRootDetails
TestswithCommonUnitRootProcess
Levin,Lin,andChu
Breitung
Hadri
TestswithIndividualUnitRootProcesses
Im,Pesaran,andShin
FisherADFandFisherPP
SummaryofAvailablePanelUnitRootTests
Recentliteraturesuggeststhatpanelbasedunitroottestshavehigherpowerthanunitroottests
basedonindividualtimeseries.EViewswillcomputeoneofthefollowingfivetypesofpanelunit
roottests:Levin,LinandChu(2002),Breitung(2000),Im,PesaranandShin(2003),Fishertype
testsusingADFandPPtests(MaddalaandWu(1999)andChoi(2001)),andHadri(2000).
Whilethesetestsarecommonlytermedpanelunitroottests,theoretically,theyaresimply
multipleseriesunitrootteststhathavebeenappliedtopaneldatastructures(wherethepresenceof
crosssectionsgeneratesmultipleseriesoutofasingleseries).Accordingly,EViewssupportsthese
testsinsettingsinvolvingmultipleseries:asaseriesview(iftheworkfileispanelstructured),asa
groupview,orasapoolview.
PerformingPanelUnitRootTestsInEViews
Thefollowingdiscussionassumesthatyouarefamiliarwiththebasicsofbothunitroottestsand
panelunitroottests.
Tobegin,selectView/UnitRootTestfromthemenuofanEViewsgrouporpoolobject,orfrom
themenuofanindividualseriesinapanelstructuredworkfile.HereweshowthedialogforaGroup
unitroottesttheotherdialogsdifferslightly(fortestingusingapoolobject,thereisanadditional
fieldintheupperlefthandportionofthedialogwhereyoumustindicatethenameofthepoolseries
onwhichyouwishtoconductyourtestfortheseriesobjectinapanelworkfile,theUsebalanced
sampleoptionisnotpresent).
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Ifyouwishtoacceptthedefaultsettings,simplyclickonOK.EViewswillusethedefaultSummary
setting,andwillcomputeafullsuiteofunitroottestsonthelevelsoftheseries,alongwitha
summaryoftheresults.
Tocustomizetheunitrootcalculations,youwillchoosefromavarietyofoptions.Theoptionsonthe
lefthandsideofthedialogdeterminethebasicstructureofthetestortests,whiletheoptionson
therighthandsideofthedialogcontroladvancedcomputationaldetailssuchasbandwidthorlag
selectionmethods,orkernelmethods.
Thedropdownmenuatthetopofthedialogiswhereyouwillchoosethetypeoftesttoperform.
Therearesixsettings:Summary,CommonrootLevin,Lin,Chu,CommonrootBreitung,
IndividualrootIm,Pesaran,Shin,IndividualrootFisherADF,IndividualrootFisher
PP,andHadri,correspondingtooneormoreofthetestslistedabove.Thedropdownmenu
labelsincludeabriefdescriptionoftheassumptionsunderwhichthetestsarecomputed.Common
rootindicatesthatthetestsareestimatedassumingacommonARstructureforalloftheseries
IndividualrootisusedfortestswhichallowfordifferentARcoefficientsineachseries.
WehavealreadypointedoutthattheSummarydefaultinstructsEViewstoestimatethefirstfiveof
thetests,whereapplicable,andtoprovideabriefsummaryoftheresults.Selectinganindividual
testtypeallowsyoubettercontroloverthecomputationalmethodandprovidesadditionaldetailon
thetestresults.
Thenexttwosetsofradiobuttonsallowyoutocontrolthespecificationofyourtestequation.First,
youmaychoosetoconducttheunitrootontheLevel,1stdifference,or2nddifferenceofyour
series.Next,youmaychoosebetweensetsofexogenousregressorstobeincluded.Youcanselect
Individualinterceptifyouwishtoincludeindividualfixedeffects,Individualinterceptsand
individualtrendstoincludebothfixedeffectsandtrends,orNonefornoregressors.
TheUsebalancedsampleoptionispresentonlyifyouareestimatingaPooloraGroupunitroot
test.Ifyouselectthisoption,EViewswilladjustyoursamplesothatonlyobservationswhereall
seriesvaluesarenotmissingwillbeincludedinthetestequations.
Dependingontheformofthetestorteststobecomputed,youwillbepresentedwithvarious
advancedoptionsontherightsideofthedialog.Forteststhatinvolveregressionsonlagged
differenceterms(Levin,Lin,andChu,Breitung,Im,Pesaran,andShin,FisherADF)theseoptions
relatetothechoiceofthenumberoflagstobeincluded.Forthetestsinvolvingkernelweighting
(Levin,Lin,andChu,FisherPP,Hadri),theoptionsrelatetothechoiceofbandwidthandkernel
type.
Foragrouporpoolunitroottest,theEViewsdefaultistouseautomaticselectionmethods:
informationmatrixcriterionbasedforthenumberoflagdifferenceterms(withautomaticselection
ofthemaximumlagtoevaluate),andtheAndrewsorNeweyWestmethodforbandwidthselection.
Forunitroottestsonaseriesinapanelworkfile,thedefaultbehaviorusesuserspecifiedoptions.
Ifyouwishtooverridethesesettings,simplyentertheappropriateinformation.Youmay,for
example,selectafixed,userspecifiednumberoflagsbyenteringanumberintheUserspecified
field.Alternatively,youmaycustomizethesettingsforautomaticlagselectionmethod.Alternative
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criteriaforevaluatingtheoptimallaglengthmaybeselectedviathedropdownmenu(Akaike,
Schwarz,HannanQuinn,ModifiedAkaike,ModifiedSchwarz,ModifiedHannanQuinn),andyoumay
limitthenumberoflagstotryinautomaticselectionbyenteringanumberintheMaximumlags
box.Forthekernelbasedmethods,youmayselectakerneltypefromthedropdownmenu
(Bartlett,Parzen,Quadraticspectral),andyoumayspecifyeitheranautomaticbandwidth
selectionmethod(Andrews,NeweyWest)oruserspecifiedfixedbandwidth.
Asanillustration,weperformapanelunitroottestsonrealgrossinvestmentdata(I)intheoft
citedGrunfelddatacontainingdataonR&Dexpenditureandothereconomicmeasuresfor10firms
fortheyears1935to1954foundinGrunfeld_Baltagi.WF1.Wecomputethesummarypanelunit
roottest,usingindividualfixedeffectsasregressors,andautomaticlagdifferencetermand
bandwidthselection(usingtheSchwarzcriterionforthelagdifferences,andtheNeweyWestmethod
andtheBartlettkernelforthebandwidth).Theresultsforthepanelunitroottestarepresented
below:
Thetopoftheoutputindicatesthetypeoftest,exogenousvariablesandtestequationoptions.Ifwe
wereinsteadestimatingaPoolorGrouptest,alistoftheseriesusedinthetestwouldalsobe
depicted.Thelowerpartofthesummaryoutputgivesthemaintestresults,organizedbothbynull
hypothesisaswellasthemaintainedhypothesisconcerningthetypeofunitrootprocess.
Alloftheresultsindicatethepresenceofaunitroot,astheLLC,IPS,andbothFishertestsfailto
rejectthenullofaunitroot.
Ifyouonlywishtocomputeasingleunitroottesttype,orifyouwishtoexaminethetestsresultsin
greaterdetail,youmaysimplyrepeattheunitroottestafterselectingthedesiredtestinTesttype
dropdownmenu.Here,weshowthebottomportionoftheLLCtestspecificoutputforthesamedata:
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Foreachcrosssection,theautoregressioncoefficient,varianceoftheregression,HACofthe
dependentvariable,theselectedlagorder,maximumlag,bandwidthtruncationparameter,andthe
numberofobservationsusedaredisplayed.
PanelUnitRootDetails
Panelunitroottestsaresimilar,butnotidentical,tounitroottestscarriedoutonasingleseries.
Here,webrieflydescribethefivepanelunitroottestscurrentlysupportedinEViewsforadditional
detail,weencourageyoutoconsulttheoriginalliterature.Thediscussionassumesthatyouhavea
basicknowledgeofunitroottheory.
Webeginbyclassifyingourunitroottestsonthebasisofwhethertherearerestrictionsonthe
autoregressiveprocessacrosscrosssectionsorseries.ConsiderafollowingAR(1)processforpanel
data:
(37.45)
where crosssectionunitsorseries,thatareobservedoverperiods
The representtheexogenousvariablesinthemodel,includinganyfixedeffectsorindividual
independentidiosyncraticdisturbance.If , issaidtobeweakly(trend)stationary.Onthe
Forpurposesoftesting,therearetwonaturalassumptionsthatwecanmakeaboutthe .First,one
canassumethatthepersistenceparametersarecommonacrosscrosssectionssothat for
all .TheLevin,Lin,andChu(LLC),Breitung,andHadritestsallemploythisassumption.
Alternatively,onecanallow tovaryfreelyacrosscrosssections.TheIm,Pesaran,andShin
(IPS),andFisherADFandFisherPPtestsareofthisform.
TestsWithCommonUnitRootProcess
Levin,Lin,andChu(LLC),Breitung,andHadritestsallassumethatthereisacommonunitroot
processsothat isidenticalacrosscrosssections.Thefirsttwotestsemployanullhypothesisof
aunitrootwhiletheHadritestusesanullofnounitroot.
LLCandBreitungbothconsiderthefollowingbasicADFspecification:
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(37.46)
(37.47)
(37.48)
Underthenullhypothesis,thereisaunitroot,whileunderthealternative,thereisnounitroot.
Levin,Lin,AndChu
Foragivensetoflagorders,webeginbyestimatingtwoadditionalsetsofequations,regressing
both ,and onthelagterms (for )andtheexogenousvariables
.Theestimatedcoefficientsfromthesetworegressionswillbedenoted and ,
respectively.
(37.49)
Likewise,wemaydefinetheanalogous usingthesecondsetofcoefficients:
(37.50)
(37.51)
where aretheestimatedstandarderrorsfromestimatingeachADFinEquation(37.46).
Lastly,anestimateofthecoefficient maybeobtainedfromthepooledproxyequation:
(37.52)
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LLCshowthatunderthenull,amodifiedtstatisticfortheresulting isasymptoticallynormally
distributed
(37.53)
isthestandarderrorof ,and:
(37.54)
Theremainingterms,whichinvolvecomplicatedmomentcalculations,aredescribedingreaterdetail
inLLC.Theaveragestandarddeviationratio, ,isdefinedasthemeanoftheratiosofthelong
runstandarddeviationtotheinnovationstandarddeviationforeachindividual.Itsestimateis
derivedusingkernelbasedtechniques.Theremainingtwoterms, and areadjustment
termsforthemeanandstandarddeviation.
TheLLCmethodrequiresaspecificationofthenumberoflagsusedineachcrosssectionADF
regression, ,aswellaskernelchoicesusedinthecomputationof .Inaddition,youmust
specifytheexogenousvariablesusedinthetestequations.Youmayelecttoincludenoexogenous
regressors,ortoincludeindividualconstantterms(fixedeffects),ortoemployindividualconstants
andtrends.
Breitung
TheBreitungmethoddiffersfromLLCintwodistinctways.First,onlytheautoregressiveportion
(andnottheexogenouscomponents)isremovedwhenconstructingthestandardizedproxies:
(37.55)
Second,theproxiesaretransformedanddetrended,
(37.56)
Thepersistenceparameter isestimatedfromthepooledproxyequation:
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(37.57)
Breitungshowsthatunderthenull,theresultingestimator isasymptoticallydistributedasa
standardnormal.
TheBreitungmethodrequiresonlyaspecificationofthenumberoflagsusedineachcrosssection
ADFregression, ,andtheexogenousregressors.NotethatincontrastwithLLC,nokernel
computationsarerequired.
Hadri
TheHadripanelunitroottestissimilartotheKPSSunitroottest,andhasanullhypothesisofno
unitrootinanyoftheseriesinthepanel.LiketheKPSStest,theHadritestisbasedontheresiduals
fromtheindividualOLSregressionsof onaconstant,oronaconstantandatrend.Forexample,
ifweincludeboththeconstantandatrend,wederiveestimatesfrom:
(37.58)
Giventheresiduals fromtheindividualregressions,weformtheLMstatistic:
(37.59)
where arethecumulativesumsoftheresiduals,
(37.60)
and istheaverageoftheindividualestimatorsoftheresidualspectrumatfrequencyzero:
(37.61)
EViewsprovidesseveralmethodsforestimatingthe .SeeUnitRootTestingforadditional
details.
AnalternativeformoftheLMstatisticallowsforheteroskedasticityacross :
(37.62)
Hadrishowsthatundermildassumptions,
(37.63)
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TheHadripanelunitroottestsrequireonlythespecificationoftheformoftheOLSregressions:
whethertoincludeonlyindividualspecificconstantterms,orwhethertoincludebothconstantand
trendterms.EViewsreportstwo statisticvalues,onebasedon withtheassociated
homoskedasticityassumption,andtheotherusing thatisheteroskedasticityconsistent.
Itisworthnotingthatsimulationevidencesuggeststhatinvarioussettings(forexample,small ),
Hadri'spanelunitroottestexperiencessignificantsizedistortioninthepresenceofautocorrelation
whenthereisnounitroot.Inparticular,theHadritestappearstooverrejectthenullofstationarity,
andmayyieldresultsthatdirectlycontradictthoseobtainedusingalternativeteststatistics(see
HlouskovaandWagner(2006)fordiscussionanddetails).
TestsWithIndividualUnitRootProcesses
TheIm,Pesaran,andShin,andtheFisherADFandPPtestsallallowforindividualunitroot
processessothat mayvaryacrosscrosssections.Thetestsareallcharacterizedbythe
combiningofindividualunitrootteststoderiveapanelspecificresult.
Im,Pesaran,AndShin
Im,Pesaran,andShinbeginbyspecifyingaseparateADFregressionforeachcrosssection:
(37.64)
Thenullhypothesismaybewrittenas,
(37.65)
whilethealternativehypothesisisgivenby:
(37.66)
(wherethe maybereorderedasnecessary)whichmaybeinterpretedasanonzerofractionof
theindividualprocessesisstationary.
AfterestimatingtheseparateADFregressions,theaverageofthetstatisticsfor fromthe
individualADFregressions, :
(37.67)
isthenadjustedtoarriveatthedesiredteststatistics.
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InthegeneralcasewherethelagorderinEquation(37.64)maybenonzeroforsomecross
sections,IPSshowthataproperlystandardized hasanasymptoticstandardnormaldistribution:
(37.68)
TheexpressionsfortheexpectedmeanandvarianceoftheADFregressiontstatistics,
TheIPSteststatisticrequiresspecificationofthenumberoflagsandthespecificationofthe
deterministiccomponentforeachcrosssectionADFequation.Youmaychoosetoincludeindividual
constants,ortoincludeindividualconstantandtrendterms.
FisherADFAndFisherPP
AnalternativeapproachtopanelunitroottestsusesFishers(1932)resultstoderiveteststhat
combinethepvaluesfromindividualunitroottests.ThisideahasbeenproposedbyMaddalaand
Wu,andbyChoi.
nullofunitrootforall crosssections,wehavetheasymptoticresultthat
(37.69)
Inaddition,Choidemonstratesthat:
(37.70)
where istheinverseofthestandardnormalcumulativedistributionfunction.
EViewsreportsboththeasymptotic andstandardnormalstatisticsusingADFandPhillipsPerron
individualunitroottests.ThenullandalternativehypothesesarethesameasfortheasIPS.
ForbothFishertests,youmustspecifytheexogenousvariablesforthetestequations.Youmayelect
toincludenoexogenousregressors,toincludeindividualconstants(effects),orincludeindividual
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constantandtrendterms.
Additionally,whentheFishertestsarebasedonADFteststatistics,youmustspecifythenumberof
lagsusedineachcrosssectionADFregression.ForthePPformofthetest,youmustinsteadspecify
amethodforestimating .EViewssupportsestimatorsfor basedonkernelbasedsumof
covariances.SeeFrequencyZeroSpectrumEstimationfordetails.
SummaryOfAvailablePanelUnitRootTests
Thefollowingtablesummarizesthebasiccharacteristicsofthepanelunitroottestsavailablein
EViews:
NonenoexogenousvariablesFfixedeffectandTindividualeffectandindividualtrend.
Lastupdated:Mon,27Feb201720:50:08PST
Backtotop
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