Bounds and PANICO Testing for Cointegration in Panels with Common Factors

Anindya Banerjee and Josep Lluís Carrion-i-Silvestre

Working Papers in Economics from University of Canterbury, Department of Economics and Finance

Abstract: A panel data cointegration testing methodology in the presence of unobserved common factors is proposed, focusing first on a bounds-based strategy proposed by Pesaran et al. (2001), and then moving to a comprehensive analysis of the idiosyncratic and common components using PANIC-based approximations as suggested by Bai and Ng (2004). We call this latter approach PANICO (PANIC Analysis of Cointegration). We are thus able to derive an extension to the PANIC testing strategy for unit roots in panels to cointegration in panels and to o¤er detailed comparisons between the Pesaran and Bai-Ng classes of tests, the former based on cross-section averaging, the latter relying instead on factors extracted by principal components.

Keywords: Common factors; cross-section dependence; bounds testing; principal components; common correlated effects (search for similar items in EconPapers)
JEL-codes: C12 C23 C38 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2026-09-01
References: Add references at CitEc
Citations:

Downloads: (external link)
https://repec.canterbury.ac.nz/cbt/econwp/2608.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cbt:econwp:26/08

Access Statistics for this paper

More papers in Working Papers in Economics from University of Canterbury, Department of Economics and Finance Private Bag 4800, Christchurch, New Zealand. Contact information at EDIRC.
Bibliographic data for series maintained by Albert Yee ().