Cointegration Testing in Panel VAR Models Under Partial Identification and Spatial Dependence
AbstractThis paper considers the Panel Vector Autoregressive Models of order 1 (PVAR(1)) with possibly spatially dependent error terms. We propose a simple Method of Moments based cointegration test using the rank test of Kleibergen and Paap (2006) for fixed number of time observations. The test is shown to be robust to spatial dependence, cross-sectional and time series heteroscedasticity as well as unbalanced panels. The main novelty of our approach is that we fully exploit the "weakness" of the Anderson and Hsiao (1982) moment conditions in construction of the new test. The finite-sample performance of the proposed test statistic is investigated using the simulated data. The results show that for most scenarios the method performs well in terms of both size and power. The proposed test is applied to employment and wage equations using Spanish firm data of Alonso-Borrego and Arellano (1999) and the results show little evidence for cointegration.
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Bibliographic InfoPaper provided by Universiteit van Amsterdam, Dept. of Econometrics in its series UvA-Econometrics Working Papers with number 13-08.
Date of creation: 03 Oct 2013
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Postal: Dept. of Econometrics, Universiteit van Amsterdam, Valckenierstraat 65, NL - 1018 XE Amsterdam, The Netherlands
Web page: http://www.ase.uva.nl/uva-econometrics
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-12-20 (All new papers)
- NEP-ECM-2013-12-20 (Econometrics)
- NEP-ETS-2013-12-20 (Econometric Time Series)
- NEP-GEO-2013-12-20 (Economic Geography)
- NEP-URE-2013-12-20 (Urban & Real Estate Economics)
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