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Testing weak exogeneity in cointegrated panels

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Author Info

  • Enrique Moral-Benito

    ()
    (Banco de España)

  • Luis Serven

    (The World Bank)

Abstract

For reasons of empirical tractability, analysis of cointegrated economic time series is often developed in a partial setting, in which a subset of variables is explictly modeled conditional on the rest. This approach yields valid inference only if the conditioning variables are weakly exogenous for the parameters of interest. This paper proposes a new test of weak exogeneity in panel cointegration models. The test has a limiting Gumbel distribution that is obtained by first letting T ? ? and then letting N ? ?. We evaluate the accuracy of the asymptotic approximation in finite samples via simulation experiments. Finally, as an empirical illustration, we test weak exogeneity of disposable income and wealth in aggregate consumption

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/13/Fich/dt1307e.pdf
File Function: First version, May 2013
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Bibliographic Info

Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 1307.

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Length: 27 pages
Date of creation: May 2013
Date of revision:
Handle: RePEc:bde:wpaper:1307

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Related research

Keywords: panel data; cointegration; weak exogeneity; Monte Carlo methods;

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References

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  1. Enrique Moral-Benito & Luis Serven, 2013. "Testing weak exogeneity in cointegrated panels," Banco de Espa�a Working Papers 1307, Banco de Espa�a.
  2. Aitor Lacuesta & Sergio Puente & Ernesto Villanueva, 2011. "The schooling response to a sustained increase in low-skill wages: evidence from Spain 1989-2009," Banco de Espa�a Working Papers 1208, Banco de Espa�a.
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Cited by:
  1. Enrique Moral-Benito & Luis Serven, 2013. "Testing weak exogeneity in cointegrated panels," Banco de Espa�a Working Papers 1307, Banco de Espa�a.

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