Taking a new contour: A novel approach to panel unit root tests

The paper introduces a novel approach to testing for unit roots in panels, which takes a new contour that is drawn along the line given by the equi-squared-sum instead of the traditional one given by the equi-sample-size. We show in the paper that the distributions of the unit root tests are asymptotically normal along the new contour under both the null and the local-to-unity alternatives. Subsequently, we demonstrate that this startling finding may be exploited constructively to invent tools and methodologies for effective inferences in panel unit root models. Simulations show that our approach works quite well in finite samples.