A residual-based test of the null of cointegration in panel data
AbstractThis paper proposes a residual-based Lagrange Multiplier (LM) test for the null of cointegration in panel data. The test is analogous to the locally best unbiased invariant (LBUI) for a moving average (MA) unit root. The asymptotic distribution of the test is derived under the null. Monte Carlo simulations are performed to study the size and power properties of the proposed test. overall, the empirical sizes of the LM-FM and LM-DOLs are close to the true size even in small samples. The power is quite good for the panels where T ≥ 50, and decent with panels for fewer observation in T. In our fixed sample of N = 50 and T = 50, the presence of a moving average and correlation between the LM-DOLS test seems to be better at correcting these effects, although in some cases the LM-FM test is more powerful. Although much of the non-stationary time series econometrics has been criticized for having more to do with the specific properties of the data set rather than underlying economic models, the recent development of the cointegration literature has allowed for a concrete bridge between economic long run theory and time series methods. Our test now allows for the testing of the null of cointegration in a panel setting and should be of considerable interest to economists in a wide variety of fields.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Econometric Reviews.
Volume (Year): 17 (1998)
Issue (Month): 1 ()
Contact details of provider:
Web page: http://www.tandfonline.com/LECR20
Other versions of this item:
- Chihwa Kao & Suzanne McCoskey, 1997. "A Residual-Based Test Of The Null Of Cointegration In Panel Data," Econometrics 9711002, EconWPA.
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Peter C.B. Phillips & Mico Loretan, 1989.
"Estimating Long Run Economic Equilibria,"
Cowles Foundation Discussion Papers
928, Cowles Foundation for Research in Economics, Yale University.
- Tanaka, Katsuto, 1990. "Testing for a Moving Average Unit Root," Econometric Theory, Cambridge University Press, vol. 6(04), pages 433-444, December.
- Chihwa Kao & Min-Hsien Chiang, 1999.
"On the Estimation and Inference of a Cointegrated Regression in Panel Data,"
Center for Policy Research Working Papers
2, Center for Policy Research, Maxwell School, Syracuse University.
- Chihwa Kao & Min-Hsien Chiang, 1997. "On the Estimation and Inference of a Cointegrated Regression in Panel Data," Econometrics 9703001, EconWPA.
- Peter C.B. Phillips, 1985.
"Understanding Spurious Regressions in Econometrics,"
Cowles Foundation Discussion Papers
757, Cowles Foundation for Research in Economics, Yale University.
- Phillips, P.C.B., 1986. "Understanding spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 33(3), pages 311-340, December.
- Quintos, Carmela E & Phillips, Peter C B, 1993. "Parameter Constancy in Cointegrating Regressions," Empirical Economics, Springer, vol. 18(4), pages 675-706.
- Peter C. B. Phillips & Hyungsik R. Moon, 1999.
"Linear Regression Limit Theory for Nonstationary Panel Data,"
Econometric Society, vol. 67(5), pages 1057-1112, September.
- Peter C.B. Phillips & Hyungsik R. Moon, 1999. "Linear Regression Limit Theory for Nonstationary Panel Data," Cowles Foundation Discussion Papers 1222, Cowles Foundation for Research in Economics, Yale University.
- repec:cup:etheor:v:6:y:1990:i:4:p:433-44 is not listed on IDEAS
- Shin, Yongcheol, 1994. "A Residual-Based Test of the Null of Cointegration Against the Alternative of No Cointegration," Econometric Theory, Cambridge University Press, vol. 10(01), pages 91-115, March.
- Phillips, P C B, 1987.
"Time Series Regression with a Unit Root,"
Econometric Society, vol. 55(2), pages 277-301, March.
- Tom Doan, . "PPUNIT: RATS procedure to perform Phillips-Perron Unit Root test," Statistical Software Components RTS00160, Boston College Department of Economics.
- Peter C.B. Phillips, 1985. "Time Series Regression with a Unit Root," Cowles Foundation Discussion Papers 740R, Cowles Foundation for Research in Economics, Yale University, revised Feb 1986.
- Danny Quah, 1993.
"Exploiting Cross Section Variation for Unit Root Inference in Dynamic Data,"
FMG Discussion Papers
dp171, Financial Markets Group.
- Quah, Danny, 1994. "Exploiting cross-section variation for unit root inference in dynamic data," Economics Letters, Elsevier, vol. 44(1-2), pages 9-19.
- Quah, D., 1993. "Exploiting Cross Section Variation for Unit Root Inference in Dynamic Data," Papers 549, Stockholm - International Economic Studies.
- Phillips, Peter C B & Hansen, Bruce E, 1990.
"Statistical Inference in Instrumental Variables Regression with I(1) Processes,"
Review of Economic Studies,
Wiley Blackwell, vol. 57(1), pages 99-125, January.
- Tom Doan, . "FM: RATS procedure to estimate cointegrating vectors using Fully Modified Least Squares," Statistical Software Components RTS00069, Boston College Department of Economics.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.