COMMON STOCHASTIC TRENDS AND AGGREGATION IN HETEROGENEOUS PANELS

Štěpána Lazarová, Lorenzo Trapani () and Giovanni Urga

Econometric Theory, 2007, vol. 23, issue 1, 89-105

Abstract: In nonstationary heterogeneous panels where the number of units is finite and where each unit cointegrates, a large number of conditions needs to be satisfied for cointegration to be preserved in the aggregate relationship. In reality, the conditions most likely will not hold. This paper takes a closer look at what happens when the conditions are violated. In this case, the question of whether an aggregate relationship is observationally equivalent to a cointegrating equation is of particular interest. We derive a measure of the degree of noncointegration of the aggregate estimates, and we explore its asymptotic properties.We thank Stephen Hall for inspiring discussions and comments during the initial stage of this research. We are grateful to participants in the 9th Conference on Panel Data (Geneva, June 22–23, 2000) and the 2000 Meeting of the Society for Economic Dynamics (San José, Costa Rica, June 29–July 2, 2000) and to colleagues at the University of Bergamo (Italy), London Business School (UK), and Cass Business School (UK) for useful comments. We have enormously benefited from comments and suggestions from two anonymous referees, the editor, Peter C.B. Phillips, and the co-editor, Bruce Hansen. The usual disclaimer applies. G. Urga acknowledges ESRC (Project R022251032) for financial support. Lorenzo Trapani acknowledges financial support from Cass Business School (RAE Development Funds Scheme) and ESRC Postdoctoral Fellowship Scheme (A.N. PTA-026-27-1107).

Date: 2007
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

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:cup:etheor:v:23:y:2007:i:01:p:89-105_07

Access Statistics for this article

More articles in Econometric Theory from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().