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Testing Panel Cointegration with Unobservable Dynamic Common Factors

Author

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  • Bai, Jushan
  • Carrion-i-Silvestre, Josep Lluis

Abstract

The paper proposes statistics to test the null hypothesis of no cointegration in panel data when common factors drive the cross sectional dependence. We consider both the case in which regressors are independent of the common factors and the case in which regressors are correlated with the common factors. The proposed test statistics have limiting distributions that are independent of the common factors, making it possible to pool the individual statistics. Simulations show that the proposed procedures have good finite sample properties.

Suggested Citation

  • Bai, Jushan & Carrion-i-Silvestre, Josep Lluis, 2009. "Testing Panel Cointegration with Unobservable Dynamic Common Factors," MPRA Paper 35243, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:35243
    as

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    File URL: https://mpra.ub.uni-muenchen.de/35243/3/MPRA_paper_35243.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    panel cointegration; common factors; cross sectional dependence;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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