Nonlinear IV panel unit root testing under structural breaks in the error variance

The paper examines the behavior of a generalized version of the nonlinear IV unit root test proposed by Chang (2002) when the series’ errors exhibit nonstationary volatility. The leading case of such nonstationary volatility concerns structural breaks in the error variance. We show that the generalized test is not robust to variance changes in general, and illustrate the extent of the resulting size distortions in finite samples. More importantly, we show that pivotality is recovered when using Eicker-White heteroskedasticity-consistent standard errors. This contrasts with the case of Dickey-Fuller unit root tests, for which Eicker-White standard errors do not produce robustness and thus require computationally costly corrections such as the (wild) bootstrap or estimation of the so-called variance profile. The pivotal versions of the generalized IV tests – with or without the correct standard errors – do however have no power in $1/T$ -neighbourhoods of the null. We also study the validity of panel versions of the tests considered here.     

The Role of Scientific Expertise in COVID-19 Policy-making: Evidence from Four European Countries

Public Organization Review - Immense uncertainty and the need for drastic interventions cause politicians to rely heavily on scientific advice for underpinning or legitimating their COVID-19...     

Hierarchical Bayes modelling of penalty conversion rates of Bundesliga players

AStA Advances in Statistical Analysis - Judging by its significant potential to affect the outcome of a game in one single action, the penalty kick is arguably the most important set piece in...