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Reducing the size distortions of the panel LM test for cointegration

journal contribution
posted on 2006-03-01, 00:00 authored by Joakim WesterlundJoakim Westerlund
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principle as suggested by Choi [Choi, I., 2004, Improving the empirical size of the KPSS Test of stationarity, unpublished manuscript, Department of Economics, Hong Kong University of Science and Technology].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.

History

Journal

Economics letters

Volume

90

Pagination

384-389

Location

Amsterdam, The Netherlands

ISSN

0165-1765

Language

eng

Publication classification

C1.1 Refereed article in a scholarly journal

Copyright notice

2006, Elsevier

Issue

3

Publisher

Elsevier