Panel Cointegration Testing in the Presence of Linear Time Trends
Uwe Hassler and
Mehdi Hosseinkouchack ()
Econometrics, 2016, vol. 4, issue 4, 1-16
We consider a class of panel tests of the null hypothesis of no cointegration and cointegration. All tests under investigation rely on single-equations estimated by least squares, and they may be residual-based or not. We focus on test statistics computed from regressions with intercept only (i.e., without detrending) and with at least one of the regressors (integrated of order 1) being dominated by a linear time trend. In such a setting, often encountered in practice, the limiting distributions and critical values provided for and applied with the situation “with intercept only” are not correct. It is demonstrated that their usage results in size distortions growing with the panel size N . Moreover, we show which are the appropriate distributions, and how correct critical values can be obtained from the literature.
Keywords: single-equations; large N asymptotics; integrated series with drift (search for similar items in EconPapers)
JEL-codes: B23 C C00 C01 C1 C2 C3 C4 C5 C8 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:gam:jecnmx:v:4:y:2016:i:4:p:45-:d:81855
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