Rethinking the Univariate Approach to Panel Unit Root Testing: Using Covariates to Resolve the Incidental Trend Problem: Using Covariates to Resolve the Incidental Trend Problem
In an influential paper, Hansen (Rethinking the Univariate Approach to Unit Root Testing: Using Covariates to Increase Power, Econometric Theory 11, 1148–1171, 1995) shows that covariate augmentation can lead to substantial power gains when compared to univariate tests. In this paper we ask if this result extends also to the panel data context? The answer turns out to be yes, which is maybe not th
