Panel Unit-root Test with an Automatic Lag Selection

Alternative criteria for evaluating the optimal lag length may be selected via the combo box (Akaike, Schwarz, Hannan-Quinn, Modified Akaike, Modified Schwarz, Modified Hannan-Quinn), and you may limit the number of lags to try in automatic selection by entering a number in the Maximum lags box. This procedure sets the lag length to the value of p that minimises the respective information criteria. Ng and Perron (2001) stress that good size and power properties of all unit root tests rely on the proper choice of the lag length p used for specifying the ADF test regression. They argue, however, that traditional model selection criteria such as the AIC and BIC are not well suited for determining p with integrated data. Instead, they suggest modified information criteria (MIC).

On the basis of a series of simulation experiments, Ng and Perron recommend selecting the lag length p by minimising the modified AIC (MAIC) in the univariate context. On the basis of this advice, we will also use the MAIC in a panel context. For a test results for a model with constant and trend, denoted Individual trend and intercept, we proceed as follows;

Make sure you uncheck the Use balanced sample box and we have chosen 8 as the maximum lag length. The results are shown in the table below

Consistent with the previous tests, the results assuming a common unit root procedure indicate the absence of a unit root. Therefore we reject the null hypothesis that the series are I(1). We, therefore, conclude that the series under investigation are stationary.

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