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

Author

Listed:
  • Wagner, Martin

    (Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria)

  • Hlouskova, Jaroslava

    (Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria)

Abstract

This paper 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, Lyhagen, and Löthgren (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.

Suggested Citation

  • Wagner, Martin & Hlouskova, Jaroslava, 2007. "The Performance of Panel Cointegration Methods. Results from a Large Scale Simulation Study," Economics Series 210, Institute for Advanced Studies.
  • Handle: RePEc:ihs:ihsesp:210
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    More about this item

    Keywords

    Cross-sectional dependence; estimator; panel cointegration; simulation study; test;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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