On the Estimation and Inference of a Panel Cointegration Model with Cross-Sectional Dependence
AbstractMost of the existing literature on panel data cointegration assumes cross-sectional independence, an assumption that is difficult to satisfy. This paper studies panel cointegration under cross-sectional dependence, which is characterized by a factor structure. We derive the limiting distribution of a fully modified estimator for the panel cointegrating coefficients. We also propose a continuous-updated fully modified (CUP-FM) estimator). Monte Carlo results show that the CUP-FM estimator has better small sample properties than the two-step FM (2S-FM) and OLS estimators.
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Bibliographic InfoPaper provided by Center for Policy Research, Maxwell School, Syracuse University in its series Center for Policy Research Working Papers with number 75.
Length: 33 pages
Date of creation: Dec 2005
Date of revision:
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More information through EDIRC
panel data cointegration; cross-sectional independence; cross-sectional dependence; continuous updated fully modified (CUP-FM) estimator; Monte Carlo results; two-step FM (2S-FM) estimator; OLS estimator;
Find related papers by JEL classification:
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-12-20 (All new papers)
- NEP-ECM-2005-12-20 (Econometrics)
- NEP-ETS-2005-12-20 (Econometric Time Series)
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