*! version 1.0.0 May2014
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Title

xtcips -- Pesaran Panel Unit Root Test in the Presence of Cross-section Dependence

Syntax

xtcips varname [if] [in] , maxlags(#) bglags(numlist) [ q trend noc ]

xtcips is for use with balanced panel data. You must tsset your
data before using xtcips, using the panel form of tsset; see help tsset.

varname may contain time-series operators; see help varlist.

Description

xtcips estimates the CIPS test for unit roots in heterogeneous panels developed by Pesaran (2007; Section 4, p. 275-279).

- There are three specifications of the deterministics:
Case I: models without intercepts or trends (see noc option)
Case II: models with individual-specific intercepts (default)
Case III: models with incidental linear trends (see trend option)

- It allows for individual dynamics specifications in each regression based in two alternative criterion (see maxlags(#)):
i) Wald test of composite linear hypothesis about the parameters of the model (default)
ii) Portmanteau (Q) test for white noise (see q option).

- It reports the p-value of the serial correlation Breusch–Godfrey Lagrange multiplier test of each individual regression (see bglags(numlist) option)

The null hypothesis is (homogeneous non-stationary):

H0: bi = 0 for all i

against the possibly heterogeneous alternatives:

H1: bi < 0, i = 1, 2, . . . , N1
bi = 0, i = N1 + 1,N1 + 2, ... ,N

in the following cross-sectionally augmented DF (CADF) regression:

D_yit = ai + bi * yi,t-1 + ci * MEAN_yt-1 + di * MEAN_D_yt + eit

Options

maxlags(#) positive integer. Sets individual dynamic specification. Indicates the maximum number of lags to be included in the model
to be estimated for each cross-section. Then, xtcips determines the number of lags to include in each individual regression
with an iterative process from 0 to maxlags, based on the test's significance level set to select dynamics
-reject H0 (at 5% or below) in the Wald test or do not reject (at 95% or above) H0 in the Portmanteau (Q)- or maxlags, whichever comes first.

bglags(numlist) sets the serial correlation order to be tasted with the
Breusch–Godfrey Lagrange multiplier test in each individual regression. If a single
value is provided (positive integer), that order is used for all individuals. If a list of orders is
provided, its length must match the number of individuals in the panel.

trend includes a time trend in the estimated equation (Case III).

q sets Portmanteau (Q) test for white noise as the dynamics specification criterion.

noc suppress constant term (Case I).

Saved results

xtcips saves the following in r():

Scalars

r(cips) CIPS statistic

Matrices

r(cv) Critical values of average of individual cross-sectionally augmented Dickeyâ€“Fuller distribution

r(W) Individual regression diagnostics

References

Pesaran, M. H. (2007). "A Simple Panel Unit Root Test In The Presence Of Cross-section Dependence."
Journal Of Applied Econometrics 22: 265–312

Acknowledgements

This routine was made with the helpful advice of Tamara Burdisso. Any errors are my own.
I acknowledge useful comments made by Dr. Predrag Petrović from Institute of Social Sciences in Belgrade.

Author

Maximo Sangiacomo
Email: msangia@hotmail.com