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Article Citation - WoS: 1Citation - Scopus: 2Controlling Heterogeneous Structure of Smooth Breaks in Panel Unit Root and Cointegration Testing(Springer, 2023) Omay, Tolga; Iren, PerihanThis study aims to show the consequences of a restrictive homogeneity assumption of frequency in heterogeneous panel unit root and cointegration testing with Flexible Fourier Form. For this purpose, we use a simple panel unit root and residual based cointegration test with Flexible Fourier Form in a heterogeneous frequency setting using a bootstrap algorithm. The power of the test statistics and empirical analysis results indicate that failing to take into account a heterogeneous frequency may lead to misleading inferences, thereby leading to misspecified tests and erroneous conclusions concerning the stochastic behavior of the data in the panel sample.Article Citation - WoS: 20Citation - Scopus: 20Testing for Unit Roots in Dynamic Panels with Smooth Breaks and Cross-Sectionally Dependent Errors(Springer, 2018) Omay, Tolga; Hasanov, Mubariz; Shin, YongcheolWe develop the extended unit root testing procedure for dynamic panels characterised by slowly moving trends (SMT) and cross-section dependence (CSD). We allow SMT to follow the smooth logistic transition function and the components error terms to contain the unobserved common factors. We propose the two panel unit root test statistics, one derived by the extended common correlated effects (CCE) estimator and the other based on the Sieve bootstrap. We have conducted extensive simulation exercises and document that the failure to take into account SMT and CSD may lead to misleading inference. On the other hand, we find that both bootstrap and CCE-based tests maintain good power properties in small samples in the presence SMT and CSD. We apply our proposed tests to real interest rates for 17 OECD countries and find overwhelming evidence in favour of the Fisher hypothesis.
