TY - JOUR

T1 - Panel Cointegration Testing in the Presence of a Time Trend

AU - Karaman Örsal, Deniz Dilan

AU - Droge, Bernd

PY - 2014/8

Y1 - 2014/8

N2 - A new likelihood-based panel cointegration test which allows a linear time trend in the data generating process is proposed. The test is an extension of the likelihood ratio type test with trend adjustment prior to testing to the panel data framework. Under the null hypothesis, the standardized statistic has a limiting normal distribution as the number of time periods and the number of cross-sections tend to infinity sequentially. Additionally, an approximation involving the moments based on a vector autoregressive process of order one is introduced. A Monte Carlo study demonstrates that the test has reasonable size and high power in finite samples.

AB - A new likelihood-based panel cointegration test which allows a linear time trend in the data generating process is proposed. The test is an extension of the likelihood ratio type test with trend adjustment prior to testing to the panel data framework. Under the null hypothesis, the standardized statistic has a limiting normal distribution as the number of time periods and the number of cross-sections tend to infinity sequentially. Additionally, an approximation involving the moments based on a vector autoregressive process of order one is introduced. A Monte Carlo study demonstrates that the test has reasonable size and high power in finite samples.

KW - Economics, empirical/statistics

KW - Likelihood ratio

KW - Monte Carlo study

KW - Panel cointegration test

KW - Time trend

UR - http://www.scopus.com/inward/record.url?scp=84901634682&partnerID=8YFLogxK

U2 - 10.1016/j.csda.2012.05.017

DO - 10.1016/j.csda.2012.05.017

M3 - Journal articles

VL - 76

SP - 377

EP - 390

JO - Computational Statistics & Data Analysis

JF - Computational Statistics & Data Analysis

SN - 0167-9473

ER -