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  • Unit root testing small panel dataset IPS - How to test if all panels have unit root

    Hello all,

    For my master's thesis I am conducting research about the effect of tax exemptions and subsidies on car purchase on the adoption rate of electric vehicles. For this I have formed a panel dataset containing data of 15 EU countries for 8 years.
    My issue in doing this research at the moment is how to test for unit root in the data. I have used the Im-Pesaran-Shin test and found that the null hypothesis can be rejected, so at least one panel is stationary. However, all my panels have to be stationary, according to my supervisor. I do not know how I can test this. The IPS test is definitely the better one for me to use, because it allows the autoregressive parameter to vary between the panels. In the meantime I have considered using the Breitung test, but because of the fact that I use data from several countries which brings with it cultural and institutional differences I do not think that the Breitung test will be appropriate to use.

    Is there a way to become sure about the (non-)stationarity by using the IPS test and some other test? Or is there another test that is appropriate to use when using a small panel dataset with macro- en micro-economic variables in it?

    Thanks in advance for your time and advice.
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