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Testing for Multicointegration in Panel Data with Common Factors

  • Vanessa Berenguer-Rico
  • Josep Lluís Carrion-i-Silvestre

This paper addresses the concept of multicointegration in a panel data framework and builds upon the panel data cointegration procedures developed in Pedroni ["Econometric Theory" (2004), Vol. 20, pp. 597-625]. When individuals are either cross-section independent, or cross-section dependence can be removed by cross-section demeaning, our approach can be applied to the wider framework of mixed "I"(2) and "I"(1) stochastic processes. The paper also deals with the issue of cross-section dependence using approximate common-factor models. Finite sample performance is investigated through Monte Carlo simulations. Finally, we illustrate the use of the procedure investigating an inventories, sales and production relationship for a panel of US industries. Copyright 2006 Blackwell Publishing Ltd.

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Article provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics and Statistics.

Volume (Year): 68 (2006)
Issue (Month): s1 (December)
Pages: 721-739

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Handle: RePEc:bla:obuest:v:68:y:2006:i:s1:p:721-739
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  1. James H. Stock & Mark W. Watson, 1991. "A simple estimator of cointegrating vectors in higher order integrated systems," Working Paper Series, Macroeconomic Issues 91-3, Federal Reserve Bank of Chicago.
  2. Anindya Banerjee & Josep Lluis Carrion-i-Silvestre, 2011. "Cointegration in Panel Data with Breaks and Cross-section Dependence," Discussion Papers 11-25, Department of Economics, University of Birmingham.
  3. Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
  4. Boriss Siliverstovs, 2003. "Multicointegration in US Consumption Data," Discussion Papers of DIW Berlin 382, DIW Berlin, German Institute for Economic Research.
  5. Breitung, J. & Pesaran, M.H., 2005. "Unit Roots and Cointegration in Panels," Cambridge Working Papers in Economics 0535, Faculty of Economics, University of Cambridge.
  6. Jushan Bai & Serena Ng, 2001. "A PANIC Attack on Unit Roots and Cointegration," Boston College Working Papers in Economics 519, Boston College Department of Economics.
  7. 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.
  8. Peter C.B. Phillips & Sam Ouliaris, 1987. "Asymptotic Properties of Residual Based Tests for Cointegration," Cowles Foundation Discussion Papers 847R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1988.
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  16. Anindya Banerjee & Massimiliano Marcellino & Chiara Osbat, . "Testing for PPP: Should We Use Panel Methods?," Working Papers 186, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  17. Engsted, Tom & Haldrup, Niels, 1999. " Multicointegration in Stock-Flow Models," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(2), pages 237-54, May.
  18. Maddala, G S & Wu, Shaowen, 1999. " A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-52, Special I.
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