Some cautions on the use of nonlinear panel unit root tests: evidence from a modified series-specific non-linear panel unit-root test

Chi Keung Lau, Farrukh Suvankulov, Yongyang Su, Frankie Chau

    Research output: Contribution to journalArticlepeer-review

    18 Citations (Scopus)

    Abstract

    The purpose of this paper is to examine the relevance of applying nonlinear panel unit root test to examine the non-linear mean reversion behaviors of real exchange rates. We find that nonlinear panel unit root test may achieve lower power performance as compared to its alternative of linear panel unit test when the data generating process does not contain significant non-linear components. This finding post cautions to researchers in modeling and testing real exchanges behavior. We also develop a modified series-specific nonlinear panel unit root test and find evidence in favor of purchasing power parity hypothesis for China's four ASEAN trading partners in the period of February 1997 to August 2009.
    Original languageEnglish
    Pages (from-to)810-816
    JournalEconomic Modelling
    Volume29
    Issue number3
    DOIs
    Publication statusPublished - 7 May 2012

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