Cointegration Testing in Panel VAR Models Under Partial Identification and Spatial Dependence

Artūras Juodis

No 13-08, UvA-Econometrics Working Papers from Universiteit van Amsterdam, Dept. of Econometrics

Abstract: This paper considers the Panel Vector Autoregressive Models of order 1 (PVAR(1)) with possibly spatially dependent error terms. We propose a simple Method of Moments based cointegration test using the rank test of Kleibergen and Paap (2006) for fixed number of time observations. The test is shown to be robust to spatial dependence, cross-sectional and time series heteroscedasticity as well as unbalanced panels. The main novelty of our approach is that we fully exploit the "weakness" of the Anderson and Hsiao (1982) moment conditions in construction of the new test. The finite-sample performance of the proposed test statistic is investigated using the simulated data. The results show that for most scenarios the method performs well in terms of both size and power. The proposed test is applied to employment and wage equations using Spanish firm data of Alonso-Borrego and Arellano (1999) and the results show little evidence for cointegration.

Date: 2013-10-03
New Economics Papers: this item is included in nep-ecm, nep-ets, nep-geo and nep-ure
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Working Paper: Cointegration Testing in Panel VAR Models Under Partial Identification and Spatial Dependence (2014)
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