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A Parametric approach to the Estimation of Cointegration Vectors in Panel Data

  • Jorg Breitung

In this article, a parametric framework for estimation and inference in cointegrated panel data models is considered that is based on a cointegrated VAR(p) model. A convenient two-step estimator is suggested where, in the first step, all individual specific parameters are estimated, and in the second step, the long-run parameters are estimated from a pooled least-squares regression. The two-step estimator and related test procedures can easily be modified to account for contemporaneously correlated errors, a feature that is often encountered in multi-country studies. Monte Carlo simulations suggest that the two-step estimator and related test procedures outperform semiparametric alternatives such as the fully modified OLS approach, especially if the number of time periods is small.

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Article provided by Taylor & Francis Journals in its journal Econometric Reviews.

Volume (Year): 24 (2005)
Issue (Month): 2 ()
Pages: 151-173

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Handle: RePEc:taf:emetrv:v:24:y:2005:i:2:p:151-173
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  6. Yoosoon Chang, 2000. "Bootstrap Unit Root Tests in Panels with Cross-Sectional Dependency," Econometric Society World Congress 2000 Contributed Papers 1585, Econometric Society.
  7. Arellano, M, 1987. "Computing Robust Standard Errors for Within-Groups Estimators," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 49(4), pages 431-34, November.
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  18. repec:cup:etheor:v:13:y:1997:i:4:p:529-57 is not listed on IDEAS
  19. Peter Pedroni, 2000. "Fully Modified OLS for Heterogeneous Cointegrated Panels," Department of Economics Working Papers 2000-03, Department of Economics, Williams College.
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