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The Performance of Panel Cointegration Methods: Results from a Large Scale Simulation Study

  • Martin Wagner
  • Jaroslava Hlouskova

This article presents results concerning the performance of both single equation and system panel cointegration tests and estimators. The study considers the tests developed in Pedroni (1999, 2004), Westerlund (2005), Larsson et al. (2001), and Breitung (2005) and the estimators developed in Phillips and Moon (1999), Pedroni (2000), Kao and Chiang (2000), Mark and Sul (2003), Pedroni (2001), and Breitung (2005). We study the impact of stable autoregressive roots approaching the unit circle, of I (2) components, of short-run cross-sectional correlation and of cross-unit cointegration on the performance of the tests and estimators. The data are simulated from three-dimensional individual specific VAR systems with cointegrating ranks varying from zero to two for fourteen different panel dimensions. The usual specifications of deterministic components are considered.

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File URL: http://hdl.handle.net/10.1080/07474930903382182
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Article provided by Taylor & Francis Journals in its journal Econometric Reviews.

Volume (Year): 29 (2010)
Issue (Month): 2 (April)
Pages: 182-223

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Handle: RePEc:taf:emetrv:v:29:y:2010:i:2:p:182-223
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  26. 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.
  27. Peter Pedroni, 2004. "Panel Cointegration: Asymptotic and Finite Sample Properties of Pooled Time Series Tests with an Application to the PPP Hypothesis," Department of Economics Working Papers 2004-15, Department of Economics, Williams College.
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  35. repec:cup:etheor:v:8:y:1992:i:1:p:1-27 is not listed on IDEAS
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