Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2007:5: A Note on the Pooling of Individual PANIC Unit Root Tests

Joakim Westerlund ()
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Joakim Westerlund: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

Abstract: One of the most cited studies in recent years within the field of nonstationary panel data analysis is that of Bai and Ng (2004, A PANIC Attack on Unit Roots and Cointegration. Econometrica 72, 1127-1177), in which the authors propose PANIC, a new framework for analyzing the nonstationarity of panels with idiosyncratic and common components. This paper shows that, although valid at the level of the individual unit, PANIC is not an asymptotically valid framework for pooling tests at the aggregate panel level.

Keywords: Panel Unit Root Test; Pooling; Common Factor; Cross-Sectional Dependence

JEL-codes: C21; C22; C23

16 pages, February 19, 2007

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