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A Principal Components Analysis of Common Stochastic Trends in Heterogeneous Panel Data: Some Monte Carlo Evidence

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Author Info

  • Hall, Stephen
  • Lazarova, Stepana
  • Urga, Giovanni

Abstract

In this paper we propose a new approach based on principal components analysis to test for the number of common stochastic trends driving the non-stationary series in a panel data set. This test has the advantage that it is also consistent when there is a mixture of I(0) and I(1) series, making it unnecessary to pre-test the panel for unit root. Furthermore, the test solves the problem of dimensionality encountered in large panel data sets. Copyright 1999 by Blackwell Publishing Ltd

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Bibliographic Info

Article provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics & Statistics.

Volume (Year): 61 (1999)
Issue (Month): 0 (Special Issue Nov.)
Pages: 749-67

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Handle: RePEc:bla:obuest:v:61:y:1999:i:0:p:749-67

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Cited by:
  1. Mark J. Holmes & Arthur Grimes, 2005. "Is there long-run convergence of regional house prices in the UK?," Working Papers 05_11, Motu Economic and Public Policy Research.
  2. Giovanni Urga & Lorenzo Trapani, 2004. "Cointegration Versus Spurious Regression In Heterogeneous Panels," Royal Economic Society Annual Conference 2004 74, Royal Economic Society.
  3. Alain Hecq & Franz Palm & Jean-Pierre Urbain, 2002. "Separation, Weak Exogeneity and P-T Decomposition in Cointegrated VAR Systems with Common Features," CESifo Working Paper Series 660, CESifo Group Munich.
  4. Jerry Coakley & Ana-Maria Fuertes & Ron Smith, 2002. "A Principal Components Approach to Cross-Section Dependence in Panels," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 B5-3, International Conferences on Panel Data.
  5. Jushan Bai & Chihwa Kao, 2005. "On the Estimation and Inference of a Panel Cointegration Model with Cross-Sectional Dependence," Center for Policy Research Working Papers 75, Center for Policy Research, Maxwell School, Syracuse University.
  6. Panagiotis Reppas & Efthymios Tsionas & Dimitris Christopoulos, 2001. "European common stochastic long-run trends," Journal of Economics, Springer, vol. 74(2), pages 119-130, June.
  7. Badi H. Baltagi & Chihwa Kao, 2000. "Nonstationary Panels, Cointegration in Panels and Dynamic Panels: A Survey," Center for Policy Research Working Papers 16, Center for Policy Research, Maxwell School, Syracuse University.

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