Likelihood-based panel cointegration test in the presence of a linear time trend and cross-sectional dependence
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In: Econometric Reviews, Vol. 37, No. 10, 26.11.2018, p. 1033-1050.
Research output: Journal contributions › Journal articles › Research › peer-review
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TY - JOUR
T1 - Likelihood-based panel cointegration test in the presence of a linear time trend and cross-sectional dependence
AU - Arsova, Antonia
AU - Karaman Örsal, Deniz Dilan
PY - 2018/11/26
Y1 - 2018/11/26
N2 - This article proposes a new likelihood-based panel cointegration rank testwhich extends the test of Örsal and Droge (2014) (henceforth panel SL test)to dependent panels. The dependence is modelled by unobserved commonfactors which affect the variables in each cross-section through heterogeneousloadings. The data are defactored following the panel analysis of nonstation-arity in idiosyncratic and common components (PANIC) approach of Bai andNg (2004) and the cointegrating rank of the defactored data is then tested bythe panel SL test. AMonte Carlo study demonstrates that the proposed testingprocedure has reasonable size and power properties in finite samples.
AB - This article proposes a new likelihood-based panel cointegration rank testwhich extends the test of Örsal and Droge (2014) (henceforth panel SL test)to dependent panels. The dependence is modelled by unobserved commonfactors which affect the variables in each cross-section through heterogeneousloadings. The data are defactored following the panel analysis of nonstation-arity in idiosyncratic and common components (PANIC) approach of Bai andNg (2004) and the cointegrating rank of the defactored data is then tested bythe panel SL test. AMonte Carlo study demonstrates that the proposed testingprocedure has reasonable size and power properties in finite samples.
KW - Economics, empirical/statistics
KW - Common factors
KW - cross-sectional dependence
KW - likelihood-ratio
KW - panel cointegration rank test
KW - time trend
UR - http://www.scopus.com/inward/record.url?scp=84978066594&partnerID=8YFLogxK
U2 - 10.1080/07474938.2016.1183070
DO - 10.1080/07474938.2016.1183070
M3 - Journal articles
VL - 37
SP - 1033
EP - 1050
JO - Econometric Reviews
JF - Econometric Reviews
SN - 0747-4938
IS - 10
ER -