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An intersection test for the cointegrating rank in dependent panel data

Author

Listed:
  • Antonia Arsova

    () (Leuphana University Lueneburg, Germany)

  • Deniz Dilan Karaman Örsal

    () (Leuphana University Lueneburg, Germany)

Abstract

This paper takes a multiple testing perspective on the problem of determining the cointegrating rank in macroeconometric panel data with cross-sectional dependence. The testing procedure for a common rank among the panel units is based on Simes’ (1986) intersection test and requires only the p-values of suitable individual test statistics. A Monte Carlo study demonstrates that this simple test is robust to crosssectional dependence and has reasonable size and power properties. A multivariate version of Kendall’s tau is used to test an important assumption underlying Simes’ procedure for dependent statistics. The method is illustrated by testing the validity of the monetary exchange rate model for 8 OECD countries in the post-Bretton Woods era.

Suggested Citation

  • Antonia Arsova & Deniz Dilan Karaman Örsal, 2016. "An intersection test for the cointegrating rank in dependent panel data," Working Paper Series in Economics 357, University of Lüneburg, Institute of Economics.
  • Handle: RePEc:lue:wpaper:357
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    panel cointegration rank test; cross-sectional dependence; multiple testing; common factors; likelihood-ratio;

    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
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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