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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
trends, aretheautoregressivecoefficients,andtheerrors areassumedtobemutually
independentidiosyncraticdisturbance.If , issaidtobeweakly(trend)stationary.Onthe
otherhand,if then containsaunitroot.
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)
whereweassumeacommon ,butallowthelagorderforthedifferenceterms, ,to
varyacrosscrosssections.Thenullandalternativehypothesesforthetestsmaybewrittenas:
(37.47)
(37.48)
Underthenullhypothesis,thereisaunitroot,whileunderthealternative,thereisnounitroot.
Levin,Lin,AndChu
ThemethoddescribedinLLCderivesestimatesof fromproxiesfor and thatare
standardizedandfreeofautocorrelationsanddeterministiccomponents.
Foragivensetoflagorders,webeginbyestimatingtwoadditionalsetsofequations,regressing
both ,and onthelagterms (for )andtheexogenousvariables
.Theestimatedcoefficientsfromthesetworegressionswillbedenoted and ,
respectively.
Wedefine bytaking andremovingtheautocorrelationsanddeterministiccomponents
usingthefirstsetofauxiliaryestimates:
(37.49)
Likewise,wemaydefinetheanalogous usingthesecondsetofcoefficients:
(37.50)
Next,weobtainourproxiesbystandardizingboth and ,dividingbytheregression
standarderror:
(37.51)
where aretheestimatedstandarderrorsfromestimatingeachADFinEquation(37.46).
Lastly,anestimateofthecoefficient maybeobtainedfromthepooledproxyequation:
(37.52)
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LLCshowthatunderthenull,amodifiedtstatisticfortheresulting isasymptoticallynormally
distributed
(37.53)
where isthestandardtstatisticfor , istheestimatedvarianceoftheerrorterm ,
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)
where , ,and areasdefinedforLLC.
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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where and ,ifthemodelonlyincludesconstants( issetto0forall ),and
and ,otherwise.
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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Inthecasewherethelagorderisalwayszero( forall ),simulatedcriticalvaluesfor
areprovidedintheIPSpaperfordifferentnumbersofcrosssections ,serieslengths ,andfor
testequationscontainingeitherintercepts,orinterceptsandlineartrends.EViewsusesthesevalues,
orlinearlyinterpolatedvalues,inevaluatingthesignificanceoftheteststatistics.
InthegeneralcasewherethelagorderinEquation(37.64)maybenonzeroforsomecross
sections,IPSshowthataproperlystandardized hasanasymptoticstandardnormaldistribution:
(37.68)
TheexpressionsfortheexpectedmeanandvarianceoftheADFregressiontstatistics,
and ,areprovidedbyIPSforvariousvaluesof and anddifferingtestequation
assumptions,andarenotprovidedhere.
TheIPSteststatisticrequiresspecificationofthenumberoflagsandthespecificationofthe
deterministiccomponentforeachcrosssectionADFequation.Youmaychoosetoincludeindividual
constants,ortoincludeindividualconstantandtrendterms.
FisherADFAndFisherPP
AnalternativeapproachtopanelunitroottestsusesFishers(1932)resultstoderiveteststhat
combinethepvaluesfromindividualunitroottests.ThisideahasbeenproposedbyMaddalaand
Wu,andbyChoi.
Ifwedefine asthepvaluefromanyindividualunitroottestforcrosssection ,thenunderthe
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:
Test Null Alternative Possible Autocorrela
Deterministi tion
c Correction
Component Method
Levin,Lin Unitroot NoUnitRoot None,F,T Lags
andChu
Breitung Unitroot NoUnitRoot None,F,T Lags
IPS UnitRoot Somecross F,T Lags
sections
withoutUR
FisherADF UnitRoot Somecross None,F,T Lags
sections
withoutUR
FisherPP UnitRoot Somecross None,F,T Kernel
sections
withoutUR
Hadri NoUnit UnitRoot F,T Kernel
Root
NonenoexogenousvariablesFfixedeffectandTindividualeffectandindividualtrend.
Lastupdated:Mon,27Feb201720:50:08PST
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