Combination of Tests for Cointegration in Cross‐Correlated Panels

Verena Werkmann

Oxford Bulletin of Economics and Statistics, 2019, vol. 81, issue 1, 195-213

Abstract: In this paper, Cheng and Sheng's (2017) combination of ‘combinations of P‐values’ (CCP) is extended to a combination of more than two tests and applied for cointegration testing in cross‐correlated panels. In a Monte Carlo experiment, power and size of the different combinations of combinations are investigated. If uncertainty about the panel configuration is taken into account, the results indicate that a multi‐test combination can minimize power losses. Furthermore, the usefulness of the combinations studied is illustrated by an application to international interest rate linkage. Cross‐sectional dependencies in both the simulation and the empirical studies are accounted for by using the block bootstrap.

Date: 2019
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https://doi.org/10.1111/obes.12263

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