Likelihood-based panel cointegration test in the presence of a linear time trend and cross-sectional dependence

Publikation: Arbeits- oder Diskussionspapiere und BerichteArbeits- oder Diskussionspapiere


This paper proposes a new likelihood-based panel cointegration rank test which extends the test of Örsal & Droge (2012) (henceforth Panel SL test) to allow for cross-sectional dependence. The dependence is modelled by unobserved common factors which affect the variables in each cross-section through heterogeneous loadings. The common components are estimated following the panel analysis of nonstationarity in idiosyncratic and common components (PANIC) approach of Bai & Ng (2004) and the estimates are subtracted from the observations. The cointegrating rank of the defactored data is then tested by the Panel SL test. A Monte Carlo study demonstrates that the proposed testing procedure has reasonable size and power properties in finite samples.
VerlagInstitut für Volkswirtschaftslehre der Universität Lüneburg
Anzahl der Seiten39
PublikationsstatusErschienen - 08.2013

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  • Likelihood-Basierte Panelkointegrationsmethodik und Ihre Anwendung in Makroökonomik und Finanzmaktanalyse

    Projekt: Forschung

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