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Testing for Panel Cointegration with Multiple Structural Breaks

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Abstract

This paper proposes an LM test for the null hypothesis of cointegration that allows for the possibility of multiple structural breaks in both the level and trend of a cointegrated panel regression. The test is general enough to allow for endogenous regressors, serial correlation and an unknown number of breaks that may be located at different dates for different individuals. We derive the limiting distribution of the test and conduct a small Monte Carlo study to investigate its finite sample properties. In our empirical application to the Feldstein-Horioka Puzzle, we find evidence of cointegration between saving and investment once a level break is accommodated.

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  • Westerlund, Joakim, 2005. "Testing for Panel Cointegration with Multiple Structural Breaks," Working Papers 2005:12, Lund University, Department of Economics.
    • Handle: RePEc:hhs:lunewp:2005_012
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    More about this item

    Keywords

    Panel Cointegration; Residual-Based Cointegration Test; Structural Break; Monte Carlo Simulation; Feldstein-Horioka Puzzle.;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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