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Cointegration testing in dependent panels with breaks

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Author Info
Di Iorio, Francesca
Fachin, Stefano

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Abstract

In this paper we propose panel cointegration tests allowing for breaks and cross-section dependence based on the Continuos-Path Block bootstrap. Simulation evidence shows that the proposed panel tests have satisfactory size and power properties, hence improving considerably on asymptotic tests applied to individual series. As an empirical illustration we examine investment and saving for a panel of European countries over the 1960-2002 period, finding, contrary to the results of most individual tests, that the hypothesis of a long-run relationship with breaks is compatible with the data

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 3139.

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Date of creation: 09 May 2007
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Handle: RePEc:pra:mprapa:3139

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Related research
Keywords: Panel cointegration continuos-path block bootstrap breaks Feldstein-Horioka Puzzle.

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Find related papers by JEL classification:
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data

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  1. Westerlund, Joakim & Edgerton, David L., 2007. "A panel bootstrap cointegration test," Economics Letters, Elsevier, vol. 97(3), pages 185-190, December. [Downloadable!] (restricted)
  2. Maurice Obstfeld & Kenneth Rogoff, 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Working Papers 7777, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Allan W. Gregory & Bruce E. Hansen, 1992. "Residual-Based Tests for Cointegration in Models with Regime Shifts," Working Papers 862, Queen's University, Department of Economics.
    Other versions:
  4. Stefano Fachin, 2007. "Long-run trends in internal migrations in italy: a study in panel cointegration with dependent units," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 401-428. [Downloadable!]
    Other versions:
  5. Joakim Westerlund, 2006. "Testing for Panel Cointegration with Multiple Structural Breaks," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(1), pages 101-132, 02. [Downloadable!] (restricted)
  6. Pedroni, Peter, 2004. "Panel Cointegration: Asymptotic And Finite Sample Properties Of Pooled Time Series Tests With An Application To The Ppp Hypothesis," Econometric Theory, Cambridge University Press, vol. 20(03), pages 597-625, June. [Downloadable!]
  7. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March. [Downloadable!] (restricted)
  8. Shiller, Robert J. & Perron, Pierre, 1985. "Testing the random walk hypothesis : Power versus frequency of observation," Economics Letters, Elsevier, vol. 18(4), pages 381-386. [Downloadable!] (restricted)
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  9. Pedroni, Peter, 1999. " Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 653-70, Special I. [Downloadable!] (restricted)
  10. Johansen, S ren, 2000. "A Bartlett Correction Factor For Tests On The Cointegrating Relations," Econometric Theory, Cambridge University Press, vol. 16(05), pages 740-778, October. [Downloadable!]
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  11. Luciano Gutierrez, 2005. "Tests for cointegration in panels with regime shifts," Econometrics 0505007, EconWPA. [Downloadable!]
  12. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May. [Downloadable!] (restricted)
  13. Anindya Banerjee & Josep Lluís, 2006. "Cointegration in panel data with breaks and cross-section dependence," Working Paper Series 591, European Central Bank. [Downloadable!]
  14. Stefano Fachin, 2004. "Bootstrap inference on Fully Modified Estimates of Cointegrating Coefficients: A Comment," Economics Bulletin, Economics Bulletin, vol. 3(13), pages 1-8. [Downloadable!]
  15. Li, Hongyi & Maddala, G. S., 1997. "Bootstrapping cointegrating regressions," Journal of Econometrics, Elsevier, vol. 80(2), pages 297-318, October. [Downloadable!] (restricted)
  16. Westerlund, Joakim & Edgerton, David, 2006. "Simple Tests for Cointegration in Dependent Panels with Structural Breaks," Working Papers 2006:13, Lund University, Department of Economics, revised 28 Jan 2007. [Downloadable!]
  17. Anindya Banerjee & Josep Lluís Carrion-i-Silvestre, 2006. "Cointegration in Panel Data with Breaks and Cross-Section Dependence," Economics Working Papers ECO2006/5, European University Institute. [Downloadable!]
  18. Westerlund, Joakim, 2006. "Testing for panel cointegration with a level break," Economics Letters, Elsevier, vol. 91(1), pages 27-33, April. [Downloadable!] (restricted)
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