Truncated Product Methods for Panel Unit Root Tests

This paper proposes two new panel unit root tests based on Zaykin et al. (2002)’s truncated product method. The first one assumes constant correlation between p-values and the second one uses sieve bootstrap to allow for general forms of cross-section dependence in the panel units. Monte Carlo simulation shows that both tests have reasonably good size and are powerful in cases of some very large p-values. The proposed tests are applied to a panel of real GDP and inflation density forecasts, resulting in evidence that professional forecasters may not update their forecast precision in an optimal Bayesian way