Date: 2006
Type: Working Paper
Cointegration in Panel Data with Breaks and Cross-Section Dependence
Working Paper, EUI ECO, 2006/5
BANERJEE, Anindya, CARRION-I-SILVESTRE, Josep Lluis, Cointegration in Panel Data with Breaks and Cross-Section Dependence, EUI ECO, 2006/5 - https://hdl.handle.net/1814/4156
Retrieved from Cadmus, EUI Research Repository
The power of standard panel cointegration statistics may be affected by misspecification errors if
proper account is not taken of the presence of structural breaks in the data. We propose modifications
to allow for one structural break when testing the null hypothesis of no cointegration that retain
good properties in terms of empirical size and power. Response surfaces to approximate the finite
sample moments that are required to implement the statistics are provided. Since panel cointegration
statistics rely on the assumption of cross-section independence, a generalisation of the tests to the
common factor framework is carried out in order to allow for dependence among the units of the
panel.
Cadmus permanent link: https://hdl.handle.net/1814/4156
ISSN: 1725-6704
Series/Number: EUI ECO; 2006/5
Publisher: European University Institute