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Micro versus macro cointegration in heterogeneous panels

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  • Trapani, Lorenzo
  • Urga, Giovanni

Abstract

We consider the issue of cross-sectional aggregation in nonstationary and heterogeneous panels where each unit cointegrates. We derive asymptotic properties of the aggregate estimate, and necessary and sufficient conditions for cointegration to hold in the aggregate relationship. We then analyze the case when cointegration does not carry through the aggregation process, and we investigate whether the violation of the formal conditions for perfect aggregation can still lead to an aggregate equation that is observationally equivalent to a cointegrated relationship. We derive a measure of the degree of noncointegration of the aggregate relationship and we explore its asymptotic properties. We propose a valid bootstrap approximation of the test. A Monte Carlo exercise evaluates size and power properties of the bootstrap test.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 155 (2010)
Issue (Month): 1 (March)
Pages: 1-18

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Handle: RePEc:eee:econom:v:155:y:2010:i:1:p:1-18

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Web page: http://www.elsevier.com/locate/jeconom

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Keywords: Heterogeneous panels Aggregation Cointegration Spurious regression Bootstrap;

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References

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Cited by:
  1. Basher, Syed Abul & Elsamadisy, Elsayed Mousa, 2010. "Country Heterogeneity and Long-Run Determinants of Inflation in the Gulf Arab States," MPRA Paper 27348, University Library of Munich, Germany.
  2. Pesaran, M. Hashem & Chudik, Alexander, 2011. "Aggregation in Large Dynamic Panels," IZA Discussion Papers 5478, Institute for the Study of Labor (IZA).
  3. Smeekes Stephan & Urbain Jean-Pierre, 2011. "On the Applicability of the Sieve Bootstrap in Time series Panels," Research Memoranda 055, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization.
  4. Fauceglia, Dario & Shingal, Anirudh & Wermelinger, Martin, 2012. ""Natural hedging" of exchange rate risk: The role of imported input prices," MPRA Paper 39438, University Library of Munich, Germany.

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