Robust Unit Root and Cointegration Rank Tests for Panels and Large Systems

Peter Pedroni and Tim Vogelsang
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Peter Pedroni: Williams College
Tim Vogelsang: Cornell University

No 2005-04, Department of Economics Working Papers from Department of Economics, Williams College

Abstract: This study develops new tests for unit roots and cointegration rank in heterogeneous time series panels using methods that are robust to the presence of both incidental trends and cross sectional dependency of unknown form. Furthermore, the procedures do not require a choice of lag truncation or bandwidth to accommodate higher order serial correlation. The cointegration rank tests can also be implemented in relatively large dimensioned systems of equations for which conventional VECM based tests become infeasible. Monte Carlo simulations demonstrate that the procedures have high power and good size properties even in panels with relatively small dimensions.

Keywords: Panel Unit Roots; Cointegration Rank Tests; Robust Autocovariance Estimation (search for similar items in EconPapers)
JEL-codes: C22 C23 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2005-08
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