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PESCADF: Stata module to perform Pesaran's CADF panel unit root test in presence of cross section dependence

PESCADF runs the t-test for unit roots in heterogenous panels with cross-section dependence, proposed by Pesaran (2003). Parallel to Im, Pesaran and Shin (IPS, 2003) test, it is based on the mean of individual DF (or ADF) t-statistics of each unit in the panel. Null hypothesis assumes that all series are non-stationary. To eliminate the cross dependence, the standard DF (or ADF) regressions are augmented with the cross section averages of lagged levels and first-differences of the individual series (CADF statistics). Considered is also a truncated version of the CADF statistics which has finite first and second order moments. The exact critical values of the t-bar statistic are given by Pesaran (2003). The critical values and summary statistics of the individual t are also given in the paper, so the Z [t-bar] statistic (parallel to IPS (2003) Z [t-bar]) is distributed standard normal under the null hypothesis of nonstationarity.   Windows users can install the test directly from Stata with a command “ssc install pescadf”.   Program code Help file   When using the script, please include the following citation: Lewandowski, P., 2007. PESCADF: Stata module to perform Pesaran’s CADF panel unit root test in presence of cross section dependence, Statistical Software Components. Boston College Department of Economics.   Piotr Lewandowski, Institute for Structural Research