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Tests for cointegration in panels with regime shifts

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  • Luciano Gutierrez

    (University of Sassari)

Abstract

In the paper we extend Gregory and Hansen’s (1996)ADF, Za, Zt cointegration tests to panel data, using the method proposed in Maddala and Wu (1999). We test the null hypothesis of no cointegration for all the units in the panel against the alternative hypothesis of cointegration, while allowing for a one-time regime shift of unknown timing for at least some regressions. We derive the panel tests for the ADF, Za, Zt tests , and compare these tests with Pedroni’s (1999) panel cointegration tests. We show that Gregory and Hansen’s (1996) panel tests have higher power to reject null when there is a structural change in the cointegration vector. We apply the statistics to the analysis of the well known Feldstein-Horioka puzzle for a sample of sixteen OCDE countries. After we allow for a structural break in the cointegration regression, we find strong evidence of cointegration between saving and investment rates.

Suggested Citation

  • Luciano Gutierrez, 2005. "Tests for cointegration in panels with regime shifts," Econometrics 0505007, EconWPA.
  • Handle: RePEc:wpa:wuwpem:0505007
    Note: Type of Document - pdf; pages: 16
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/em/papers/0505/0505007.pdf
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    References listed on IDEAS

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    1. Joakim Westerlund, 2006. "Testing for Panel Cointegration with Multiple Structural Breaks," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(1), pages 101-132, February.
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    3. Pedroni, Peter, 2004. "Panel Cointegration: Asymptotic And Finite Sample Properties Of Pooled Time Series Tests With An Application To The Ppp Hypothesis," Econometric Theory, Cambridge University Press, vol. 20(03), pages 597-625, June.
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    Citations

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    Cited by:

    1. Di Iorio, Francesca & Fachin, Stefano, 2007. "Cointegration testing in dependent panels with breaks," MPRA Paper 3139, University Library of Munich, Germany.
    2. Di Iorio, Francesca & Fachin, Stefano, 2006. "Testing for breaks in cointegrated panels," MPRA Paper 3280, University Library of Munich, Germany.

    More about this item

    Keywords

    Panel data; Panel cointegration tests; Structural breaks; Feldstein-Horioka puzzle;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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