TY - CHAP

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

AU - Arsova, Antonia

AU - Karaman Örsal, Deniz Dilan

PY - 2016/8

Y1 - 2016/8

N2 - This paper proposes a new likelihood-based panel cointegration rank test which allows for a linear time trend with heterogeneous breaks and cross sectional dependence. It is based on a novel modification of the inverse normal method which combines the p-values of the individual likelihood-ratio trace statistics of Trenkler et al. (2007). We call this new test a correlation augmented inverse normal (CAIN) test. It infers the unknown correlation between the probits of the individual p-values from an estimate of the average absolute correlation between the VAR processes' innovations, which is readily observable in practice. A Monte Carlo study demonstrates that this simple test is robust to various degrees of cross-sectional dependence generated by common factors. It has better size and power properties than other meta-analytic tests in panels with dimensions typically encountered in macroeconometric analysis.

AB - This paper proposes a new likelihood-based panel cointegration rank test which allows for a linear time trend with heterogeneous breaks and cross sectional dependence. It is based on a novel modification of the inverse normal method which combines the p-values of the individual likelihood-ratio trace statistics of Trenkler et al. (2007). We call this new test a correlation augmented inverse normal (CAIN) test. It infers the unknown correlation between the probits of the individual p-values from an estimate of the average absolute correlation between the VAR processes' innovations, which is readily observable in practice. A Monte Carlo study demonstrates that this simple test is robust to various degrees of cross-sectional dependence generated by common factors. It has better size and power properties than other meta-analytic tests in panels with dimensions typically encountered in macroeconometric analysis.

KW - Economics

UR - https://www.econstor.eu/escollectionhome/10419/145457/simple-search?location=10419/145457&query=&sort_by=dc.title_sort&order=ASC&filter_field_1=vfsseries&filter_type_1=equals&filter_value_1=D01#items

M3 - Article in conference proceedings

BT - Jahrestagung des Vereins für Socialpolitik 2016: Demographischer Wandel

PB - ZBW - Leibniz Informationszentrum Wirtschaft

Y2 - 4 September 2016 through 7 September 2016

ER -