Reducing the size distortions of the panel LM test for cointegration

Westerlund, Joakim 2006, Reducing the size distortions of the panel LM test for cointegration, Economics letters, vol. 90, no. 3, pp. 384-389, doi: 10.1016/j.econlet.2005.09.002.

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Title Reducing the size distortions of the panel LM test for cointegration
Author(s) Westerlund, JoakimORCID iD for Westerlund, Joakim
Journal name Economics letters
Volume number 90
Issue number 3
Start page 384
End page 389
Total pages 6
Publisher Elsevier
Place of publication Amsterdam, The Netherlands
Publication date 2006-03
ISSN 0165-1765
Keyword(s) Bonferroni inequality
Panel cointegration
Size distortion
Social Sciences
Business & Economics
Summary This paper proposes a simple procedure to reduce the size distortions of the panel LM test for cointegration. The new procedure is based on first splitting the sample into even and odd numbered observations, and to employ the panel LM test to each subsample. The two tests are then combined using the Bonferroni principle as suggested by Choi [Choi, I., 2004, Improving the empirical size of the KPSS Test of stationarity, unpublished manuscript, Department of Economics, Hong Kong University of Science and Technology]. The Monte Carlo evidence suggests that this procedure can lead to substantial reduction in size distortions when the equilibrium errors are autoregressive. © 2005 Elsevier B.V. All rights reserved.
Language eng
DOI 10.1016/j.econlet.2005.09.002
Field of Research 150202 Financial Econometrics
Socio Economic Objective 919999 Economic Framework not elsewhere classified
HERDC Research category C1.1 Refereed article in a scholarly journal
ERA Research output type C Journal article
Copyright notice ©2006, Elsevier
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