Testing for Breaks in Cointegrated Panels - with an Application to the Feldstein-Horioka Puzzle
Abstract
Stability tests for cointegrating coefficients are known to have very low power with small to medium sample sizes. In this paper we propose to solve this problem by extending the tests to dependent cointegrated panels through the stationary bootstrap. Simulation evidence shows that the proposed panel tests improve considerably on asymptotic tests applied to individual series. As an empirical illustration we examined investment and saving for a panel of 14 European countries over the 1960-2002 period. While the individual stability tests, contrary to expectations and graphical evidence, in almost all cases do not reject the null of stability, the bootstrap panel tests lead to the more plausible conclusion that the long-run relationship between these two variables is likely to have undergone a break. --Download Info
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Paper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number 2007-39.Length:
Date of creation: 2007
Date of revision:
Handle: RePEc:zbw:ifwedp:6166
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Keywords: Panel cointegration; stationary bootstrap; parameter stability tests; FM-OLS;Other versions of this item:
- Di Iorio, Francesca & Fachin, Stefano, 2007. "Testing for Breaks in Cointegrated Panels - with an Application to the Feldstein-Horioka Puzzle," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 1(14), pages 1-23.
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-10-20 (All new papers)
- NEP-ECM-2007-10-20 (Econometrics)
- NEP-ETS-2007-10-20 (Econometric Time Series)
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Rao, B. Bhaskara & Tamazian, Artur & Kumar, Saten, 2009.
"Systems GMM estimates of the Feldstein-Horioka puzzle for the OECD countries and tests for structural breaks,"
MPRA Paper
15312, University Library of Munich, Germany.
- Rao, B. Bhaskara & Tamazian, Artur & Kumar, Saten, 2010. "Systems GMM estimates of the Feldstein-Horioka puzzle for the OECD countries and tests for structural breaks," Economic Modelling, Elsevier, vol. 27(5), pages 1269-1273, September.
- Piotr Misztal, 2011. "The Feldstein-Horioka Hypothesis in Countries with Varied Levels of Economic Development," Contemporary Economics, University of Finance and Management in Warsaw, vol. 5(2), June.
- Saten Kumar & B. Bhaskara Rao, 2011.
"A Time‐series Approach to the Feldstein–Horioka Puzzle with Panel Data from the OECD Countries,"
The World Economy,
Wiley Blackwell, vol. 34(3), pages 473-485, 03.
- Kumar, Saten & Rao, B. Bhaskara, 2009. "A Time Series Approach to the Feldstein-Horioka Puzzle with Panel Data from the OECD Countries," MPRA Paper 18464, University Library of Munich, Germany.
- Di Iorio, Francesca & Fachin, Stefano, 2012.
"A note on the estimation of long-run relationships in panel equations with cross-section linkages,"
Economics Discussion Papers
2012-1, Kiel Institute for the World Economy.
- Di Iorio, Francesca & Fachin, Stefano, 2012. "A note on the estimation of long-run relationships in panel equations with cross-section linkages," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 6(20), pages 1-18.
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