TY - JOUR

T1 - A panel cointegrating rank test with structural breaks and cross-sectional dependence

AU - Arsova, Antonia

AU - Karaman Örsal, Deniz Dilan

N1 - Funding Information: Financial support by the German Research Foundation (DFG) through the project KA-3145/1-2 is gratefully acknowledged. The authors also thank two anonymous referees and the associate editor for many helpful comments and suggestions. Publisher Copyright: © 2020 The Author(s)

PY - 2021/1/1

Y1 - 2021/1/1

N2 - A new panel cointegrating rank test which allows for a linear time trend with breaks and cross-sectional dependence is proposed. The new correlation-augmented inverse normal (CAIN) test is based on a modification of the inverse normal method and combines the p-values of individual likelihood-ratio trace statistics by assuming that the number of breaks and break points are known. A Monte Carlo study demonstrates its robustness to cross-sectional dependence and its superior size and power properties compared to other meta-analytic tests used in practice. The test is applied to investigate the long-run relationship between regional house prices and personal income in the United States in view of the structural break introduced by the Global Financial Crisis.

AB - A new panel cointegrating rank test which allows for a linear time trend with breaks and cross-sectional dependence is proposed. The new correlation-augmented inverse normal (CAIN) test is based on a modification of the inverse normal method and combines the p-values of individual likelihood-ratio trace statistics by assuming that the number of breaks and break points are known. A Monte Carlo study demonstrates its robustness to cross-sectional dependence and its superior size and power properties compared to other meta-analytic tests used in practice. The test is applied to investigate the long-run relationship between regional house prices and personal income in the United States in view of the structural break introduced by the Global Financial Crisis.

KW - Economics

KW - Panel cointegrating rank test

KW - Structural breaks

KW - Cross-sectional dependence

KW - likelihood-ratio

KW - Time trend

UR - http://www.scopus.com/inward/record.url?scp=85087934240&partnerID=8YFLogxK

UR - https://www.mendeley.com/catalogue/8ad8bf7e-8978-3698-9995-6f498248fa17/

U2 - 10.1016/j.ecosta.2020.05.002

DO - 10.1016/j.ecosta.2020.05.002

M3 - Journal articles

VL - 17

SP - 107

EP - 129

JO - Econometrics and Statistics

JF - Econometrics and Statistics

SN - 2452-3062

ER -