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A simple test for cointegration in dependent panels with structural breaks

journal contribution
posted on 2008-10-01, 00:00 authored by Joakim WesterlundJoakim Westerlund, D L Edgerton
This paper develops a very simple test for the null hypothesis of no cointegration in panel data. The test is general enough to allow for heteroskedastic and serially correlated errors, unit-specific time trends, cross-sectional dependence and unknown structural breaks in both the intercept and slope of the cointegrated regression, which may be located at different dates for different units. The limiting distribution of the test is derived, and is found to be normal and free of nuisance parameters under the null. A small simulation study is also conducted to investigate the small-sample properties of the test. In our empirical application, we provide new evidence concerning the purchasing power parity hypothesis. © Blackwell Publishing Ltd and the Department of Economics, University of Oxford, 2008.

History

Journal

Oxford bulletin of economics and statistics

Volume

70

Issue

5

Pagination

665 - 704

Publisher

Wiley

Location

Chichester, Eng.

ISSN

1468-0084

Language

eng

Copyright notice

2008, Wiley