Micro versus Macro Cointegration in Heterogeneous Panels

Lorenzo Trapani () and Giovanni Urga

No 711, Working Papers from Department of Management, Information and Production Engineering, University of Bergamo

Abstract: We consider the issue of cross-sectional aggregation in nonstationary and heterogeneous panels where each unit cointegrates. We derive asymptotic properties of the aggregate estimate, and necessary and sufficient conditions for cointegration to hold in the aggregate relationship. We then analyze the case when cointegration does not carry through the aggregation process, and we investigate whether the violation of the formal conditions for perfect aggregation can still lead to an aggregate equation that is observationally equivalent to a cointegrated relationship. We derive a measure of the degree of noncointegration of the aggregate relationship and we explore its asymptotic properties. We propose a valid bootstrap approximation of the test. A Monte Carlo exercise evaluates size and power properties of the bootstrap test.

Keywords: Heterogeneous panels; aggregation; cointegration; Spurious regression; bootstrap (search for similar items in EconPapers)
JEL-codes: C12 C13 C23 (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Micro versus macro cointegration in heterogeneous panels (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:brh:wpaper:0711

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