{smcl}
{* 09june2006}{...}
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help for {hi:pescadf}
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{title:Pesaran's simple panel unit root test in presence of cross section dependence}
{p 8 14}{cmd:pescadf} {it:varname}
[{cmd:if} {it:exp}] [{cmd:in} {it:range}] {cmd:,lags({it:numlist})} [
{cmdab:trend} {cmdab:nodemean } {cmdab:trunoff}]
{p}{cmd:pescadf} is a test for panel data. You should {cmd:tsset} your
data before using {cmd:pescadf}, using the panel form of {cmd:tsset}; see help {help tsset}.
{p} {it:varname} may contain time-series operators; see help {help varlist}.
{title:Description}
{p}{cmd:pescadf} runs the t-test for unit roots in heterogenous panels with cross-section dependence, proposed by
Pesaran (2003). Parallel to Im, Pesaran and Shin (IPS, 2003) test, it is based on the mean of individual DF (or ADF)
t-statistics of each unit in the panel. Null hypothesis assumes that all series are non-stationary.
To eliminate the cross dependence, the standard DF (or ADF) regressions are augmented with the cross section averages
of lagged levels and first-differences of the individual series (CADF statistics).
Considered is also a truncated version of the CADF statistics which has finite first and second order moments.
It allows to avoid size distortions, especially in the case of models with residual serial correlations
and linear trends (Pesaran, 2003).
{p} In the case where T is fixed, to ensure that the CADF statistics do not depend on the nuisance parameters
the effect of the initial cross-section mean must also be eliminated, this can be achieved by applying the test to
the deviations of the variable from initial crosssection mean Pesaran (2003).
Lags of the dependent variable may be introduced to control for serial correlation in the errors.
The order of augmentation, can be estimated using model selection criteria such as Akaike or Schwartz
applied as usual to the underlying time series specification.
{p} The exact critical values of the t-bar statistic are given by Pesaran (2003).
The critical values and summary statistics of the individual t are also given in the paper,
so the Z[t-bar] statistic parallel to IPS (2003) Z[t-bar] (4.10) is distributed standard normal under the null
hypothesis of nonstationarity. Moreover, Pesaran (2003) suggests that generalization of the test to unbalanced panels
can be made straightforwardly as IPS (2003) show. Hence in case of unbalanced panels only standarized Z[t-bar] statistics
can be computed.
{p} Analogous to IPS (2003) test, Pesaran's CADF is consistent under the alternative that only a fraction of the series
are stationary.
{title:Options}
{p 0 4}{cmd:lags} must be specified, and may be uqual to any non-negative integer. Provided should be or single value which determines
the lag length for all units in panel, or a list of lags matching the number of units in the panel.
{p 0 4}{cmd:trend} includes a time trend in the estimated equation.
{p 0 4}{cmd:nodemean} neglects eliminating initial cross-section mean from the variable tested. Applying the test to such deviations
is default version because it is suggested by Pesaran (2003).
{p 0 4}{cmd:trunoff} As CADF statistics has no finite first and second moments, Pesaran (2003) suggest replacing extreme values
of the test statistics by K1 or K2 such that Pr [-K1 < ti(N, T) < K2] is sufficiently large, namely in excess of 0.9999.
Pesaran (2003) simulates K1 and K2 for 3 types of model depending on the deterministic part
(no deterministics; intercept, intercept and linear trend)
{title:Examples}
{p 8 12}{inp:.} {stata "use http://fmwww.bc.edu/ec-p/data/hayashi/sheston91.dta,clear":use http://fmwww.bc.edu/ec-p/data/hayashi/sheston91.dta,clear}
{p 8 12}{inp:. pescadf rgdppc if country>116 & country<140, lags(2)}
{p 8 12}{inp:. pescadf rgdppc if country>116 & country<140, lags(2) trend}
{p 8 12}{inp:. pescadf rgdppc if country>116 & country<140, lags(2) trend trunoff}
{p 8 12}{inp:. pescadf D.rgdppc if country>116 & country<140, lags(1)}
{title:References}
Breitung, J., Pesaran, H., (2005), Unit Roots and Cointegration in Panels,
CESIFO Working Paper No. 1565
Im, K., Pesaran, H., Shin, Y., (2003), Testing for unit roots in heterogenous panels,
Journal of Econometrics, vol. 115.
Pesaran, H., (2003), A Simple Panel Unit Root Test in the Presence of Cross Section Dependence,
Cambridge Working Papers in Economics 0346, Faculty of Economics (DAE), University of Cambridge
{title:Acknowledgements}
This routine was inspired by C. F. Baum's & F. Bornhorst's -ipshin- routine.
{title:Author}
Piotr Lewandowski, Warsaw School of Economics, Institute for Structural Research, Poland,
Piotr.Lewandowski@sgh.waw.pl
{title:Also see}
{p 0 19}On-line: help for {help dfuller}, {help madfuller} (if installed), {help ipshin} (if installed), {help levinlin} (if installed) {p_end}