Advanced Search
MyIDEAS: Login to save this paper or follow this series

Likelihood-based panel cointegration test in the presence of a linear time trend and cross-sectional dependence

Contents:

Author Info

  • Antonia Arsova

    ()
    (Leuphana University Lueneburg, Germany)

  • Deniz Dilan Karaman Oersal

    ()
    (Leuphana University Lueneburg, Germany)

Abstract

This paper proposes a new likelihood-based panel cointegration rank test which extends the test of Oersal and Droge (2012) (henceforth Panel SL test) to allow for crosssectional dependence. The dependence is modelled by unobserved common factors which affect the variables in each cross-section through heterogeneous loadings. The common components are estimated following the panel analysis of nonstationarity in idiosyncratic and common components (PANIC) approach of Bai and Ng (2004) and the estimates are subtracted from the observations. The cointegrating rank of the defactored data is then tested by the Panel SL test. A Monte Carlo study demonstrates that the proposed testing procedure has reasonable size and power properties in finite samples.

Download Info

If 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.
File URL: http://www.leuphana.de/fileadmin/user_upload/Forschungseinrichtungen/ifvwl/WorkingPapers/wp_280_Upload.pdf
Download Restriction: no

Bibliographic Info

Paper provided by University of Lüneburg, Institute of Economics in its series Working Paper Series in Economics with number 280.

as in new window
Length: 44 pages
Date of creation: Aug 2013
Date of revision:
Handle: RePEc:lue:wpaper:280

Contact details of provider:
Web page: http://leuphana.de/institute/ivwl.html

Related research

Keywords: panel cointegration rank test; cross-sectional dependence; common factors; likelihoodratio; time trend;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. J.J.J. Groen & F. Kleibergen, 2001. "Likelihood-Based Cointegration Analysis in Panels of Vector Error Correction Models," WO Research Memoranda (discontinued), Netherlands Central Bank, Research Department 646, Netherlands Central Bank, Research Department.
  2. Rolf Larsson & Johan Lyhagen & Mickael Lothgren, 2001. "Likelihood-based cointegration tests in heterogeneous panels," Econometrics Journal, Royal Economic Society, Royal Economic Society, vol. 4(1), pages 41.
  3. Toda, Hiro Y, 1994. "Finite Sample Properties of Likelihood Ratio Tests for Cointegrating Ranks when Linear Trends are Present," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 66-79, February.
  4. Carsten Trenkler, 2008. "Determining p-values for systems cointegration tests with a prior adjustment for deterministic terms," Computational Statistics, Springer, Springer, vol. 23(1), pages 19-39, January.
  5. Dées, Stéphane & di Mauro, Filippo & Pesaran, Hashem & Smith, Vanessa, 2005. "Exploring the international linkages of the euro area: a global VAR analysis," Working Paper Series, European Central Bank 0568, European Central Bank.
  6. Jushan Bai, 2003. "Inferential Theory for Factor Models of Large Dimensions," Econometrica, Econometric Society, Econometric Society, vol. 71(1), pages 135-171, January.
  7. Alexei Onatski, 2005. "Determining the number of factors from empirical distribution of eigenvalues," Discussion Papers, Columbia University, Department of Economics 0405-19, Columbia University, Department of Economics.
  8. J. Isaac Miller, 2010. "A Nonlinear IV Likelihood-Based Rank Test for Multivariate Time Series and Long Panels," Working Papers, Department of Economics, University of Missouri 1001, Department of Economics, University of Missouri.
  9. Jushan Bai & Serena Ng, 2000. "Determining the Number of Factors in Approximate Factor Models," Econometric Society World Congress 2000 Contributed Papers 1504, Econometric Society.
  10. Christian Gengenbach & Franz C. Palm & Jean-Pierre Urbain, 2006. "Cointegration Testing in Panels with Common Factors," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(s1), pages 683-719, December.
  11. Bernd Droge & Deniz Dilan Karaman Örsal, 2009. "Panel Cointegration Testing in the Presence of a Time Trend," SFB 649 Discussion Papers SFB649DP2009-005, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  12. Helmut Lütkepohl & Pentti Saikkonen & Carsten Trenkler, 2001. "Maximum eigenvalue versus trace tests for the cointegrating rank of a VAR process," Econometrics Journal, Royal Economic Society, Royal Economic Society, vol. 4(2), pages 8.
  13. M. Hashem Pesaran, 2006. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," Econometrica, Econometric Society, Econometric Society, vol. 74(4), pages 967-1012, 07.
  14. Toda, Hiro Y., 1995. "Finite Sample Performance of Likelihood Ratio Tests for Cointegrating Ranks in Vector Autoregressions," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 11(05), pages 1015-1032, October.
  15. Wagner, Martin & Hlouskova, Jaroslava, 2007. "The Performance of Panel Cointegration Methods. Results from a Large Scale Simulation Study," Economics Series, Institute for Advanced Studies 210, Institute for Advanced Studies.
  16. repec:wop:humbsf:1997-84 is not listed on IDEAS
  17. Jushan Bai & Serena Ng, 2001. "A PANIC Attack on Unit Roots and Cointegration," Boston College Working Papers in Economics, Boston College Department of Economics 519, Boston College Department of Economics.
  18. Laurent A.F. Callot, 2010. "A Bootstrap Cointegration Rank Test for Panels of VAR Models," CREATES Research Papers 2010-75, School of Economics and Management, University of Aarhus.
  19. Jushan Bai & Josep Lluís Carrion‐i‐Silvestre, 2013. "Testing panel cointegration with unobservable dynamic common factors that are correlated with the regressors," Econometrics Journal, Royal Economic Society, Royal Economic Society, vol. 16(2), pages 222-249, 06.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Karaman Örsal, Deniz Dilan, 2014. "Do the global stochastic trends drive the real house prices in OECD countries?," Economics Letters, Elsevier, Elsevier, vol. 123(1), pages 9-13.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:lue:wpaper:280. See general 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: (Joachim Wagner).

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.