IDEAS home Printed from https://ideas.repec.org/p/ptu/wpaper/w202605.html

Testing for Explosiveness in Panels: A Self-Normalized Test for Stationarity in Cointegrating Residuals

Author

Listed:
  • Paulo M.M. Rodrigues
  • Philipp Sibbertsen
  • Gabriel Zsurkis

Abstract

We propose a panel test for whether a long-run cointegrating relationship holds throughout the sample or temporarily breaks down through a transient explosive episode before reverting. Existing stationarity-null tests are designed to detect permanent nonstationarity and have low power against temporary explosiveness, while recursive explosive-root tests require a known normalized cointegrating vector and are not applicable when the long-run relationship involves multiple estimated fundamentals. Our procedure fills this gap by first estimating the cointegrating relationship using pooled Dynamic OLS and then applying a rolling self-normalized stationarity test to the estimated equilibrium errors. Forward and backward rolling supremum statistics are combined to detect explosive episodes regardless of timing. Local-to-unity pre-filtering improves size control under highly persistent errors, while bootstrap critical values provide inference. Monte Carlo simulations indicate good size and satisfactory power of the test. Applied to a quarterly panel of 50 U.S. states from 1975 to 2025, the test identifies a transient explosive departure from the house-price-to-fundamentals equilibrium during the mid-2000s housing boom, followed by reversion rather than permanent breakdown of the long-run relationship.

Suggested Citation

  • Paulo M.M. Rodrigues & Philipp Sibbertsen & Gabriel Zsurkis, 2026. "Testing for Explosiveness in Panels: A Self-Normalized Test for Stationarity in Cointegrating Residuals," Working Papers w202605, Banco de Portugal, Economics and Research Department.
  • Handle: RePEc:ptu:wpaper:w202605
    as

    Download full text from publisher

    File URL: https://www.bportugal.pt/sites/default/files/documents/2026-07/WP202605.pdf
    Download Restriction: no
    ---><---

    More about this item

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ptu:wpaper:w202605. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: DEE-NTD (email available below). General contact details of provider: https://edirc.repec.org/data/bdpgvpt.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.