Testing for common cointegrating rank in dynamic panels

Rolf Larsson and Johan Lyhagen ()
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Rolf Larsson: Department of Statistics, Stockholm University, Postal: S-106 91 Stockholm, Sweden

No 378, SSE/EFI Working Paper Series in Economics and Finance from Stockholm School of Economics

Abstract: The panel cointegration test of Larsson et al (1998) test for the maximum number of cointegrating relations in a dynamic panel given the assumption of a common cointegrating rank. This paper presents a test for this assumption. The test is based on the test statistic of Larsson et al (1998) and a new panel test based on the principal component estimator of cointegrating relations of Harris (1997). The asymptotic distribution is derived and shown to be standard normal. An extensive Monte Carlo simulation shows that the test has good small sample size and power properties. In the consumption function example in Larsson et al (1998) the assumption of common cointegrating rank amongst 23 OECD countries is shown to hold.

Keywords: Cointegration; Consumption; 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: 43 pages
Date: 2000-04-19
New Economics Papers: this item is included in nep-ecm and nep-ets
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Citations: View citations in EconPapers (8)

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