Cross-sectional and serial correlation in a small-sample homogeneous panel data unit root test

Abstract

In this paper, response surface parameters are provided that can be used to obtain critical values for an augmentation of an existing homogeneous panel data unit root test. The augmentation is performed to account for serial correlation in the disturbances. As the existing panel data unit root test is robust against cross-sectional correlation, the augmented test is robust against both cross-sectional and serial correlation. By running a Monte Carlo simulation study, the small-sample properties of the augmented test are shown to be good.