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This paper adopts the factor\u2010based cross\u2010sectional dependence paradigm of Bai and Ng (<jats:ext-link xmlns:xlink=\"http:\/\/www.w3.org\/1999\/xlink\" xlink:href=\"#bib3\">2005<\/jats:ext-link>) but suggests alternative factor extraction methods. Some theoretical results for these methods are provided. Further, a detailed Monte Carlo study of these methods for multiple and persistent factors is undertaken. It is found that results are radically different from the serially uncorrelated single\u2010factor case. Tests perform much worse and in some cases it is preferable not to correct at all for cross\u2010sectional dependence. Copyright \u00a9 2007 John Wiley &amp; Sons, Ltd.<\/jats:p>","DOI":"10.1002\/jae.943","type":"journal-article","created":{"date-parts":[[2007,4,17]],"date-time":"2007-04-17T15:16:35Z","timestamp":1176822995000},"page":"313-338","source":"Crossref","is-referenced-by-count":13,"title":["Dynamic factor extraction of cross\u2010sectional dependence in panel unit root tests"],"prefix":"10.1002","volume":"22","author":[{"given":"George","family":"Kapetanios","sequence":"first","affiliation":[],"role":[{"role":"author","vocabulary":"crossref"}]}],"member":"311","published-online":{"date-parts":[[2007,4,17]]},"reference":[{"key":"e_1_2_9_2_1","doi-asserted-by":"crossref","first-page":"157","DOI":"10.1111\/j.1540-6261.1990.tb05085.x","article-title":"Purchasing power parity in the long run","volume":"45","author":"Abuaf N","year":"1991","journal-title":"Journal of Finance"},{"key":"e_1_2_9_3_1","doi-asserted-by":"publisher","DOI":"10.1111\/1468-0262.00273"},{"key":"e_1_2_9_4_1","doi-asserted-by":"publisher","DOI":"10.1111\/j.1468-0262.2004.00528.x"},{"key":"e_1_2_9_5_1","doi-asserted-by":"publisher","DOI":"10.1002\/jae.950"},{"key":"e_1_2_9_6_1","doi-asserted-by":"publisher","DOI":"10.1016\/S0731-9053(00)15002-9"},{"key":"e_1_2_9_7_1","unstructured":"BauerD.1998.Some asymptotic theory for the estimation of linear systems using maximum likelihood methods or subspace algorithms. 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