Likelihood-Based Cointegration Tests in Heterogeneous Panels

Rolf Larsson, Johan Lyhagen () and Mickael Löthgren ()
Additional contact information
Rolf Larsson: Department of Statistics, Postal: Stockholm University, 106 91 Stockholm, Sweden
Mickael Löthgren: Dept. of Economic Statistics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, S-113 83 Stockholm, Sweden

No 250, SSE/EFI Working Paper Series in Economics and Finance from Stockholm School of Economics

Abstract: This paper presents a likelihood-based panel test of cointegrating rank in heterogeneous panel models based on the mean of the individual rank trace statistics. The existence of the first two moments of the asymptotic distribution of the individual trace statistic is established. Based on this, the asymptotic distribution of the test statistic is shown to be normal. The small-sample size and power properties are investigated using Monte Carlo simulations. An empirical example for a consumption model including consumption, income and inflation is estimated for 23 OECD countries over the period 1960-1994. The results indicate that two cointegrating relations exist in the system: One containing consumption and income and one inflation only.

Keywords: Cointegration; Consumption; Monte Carlo simulations; Panel data; Rank test. (search for similar items in EconPapers)
JEL-codes: C12 C13 C15 C22 C23 D12 (search for similar items in EconPapers)
Pages: 27 pages
Date: 1998-08-26, Revised 1998-08-27
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ifn
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Citations: View citations in EconPapers (44)

Published in Econometrics Journal, 2001, pages 109-142.

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Journal Article: Likelihood-based cointegration tests in heterogeneous panels (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:hastef:0250

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