Testing for Panel Cointegration with Multiple Structural Breaks

Joakim Westerlund

No 2005:12, Working Papers from Lund University, Department of Economics

Abstract: This paper proposes an LM test for the null hypothesis of cointegration that allows for the possibility of multiple structural breaks in both the level and trend of a cointegrated panel regression. The test is general enough to allow for endogenous regressors, serial correlation and an unknown number of breaks that may be located at different dates for different individuals. We derive the limiting distribution of the test and conduct a small Monte Carlo study to investigate its finite sample properties. In our empirical application to the Feldstein-Horioka Puzzle, we find evidence of cointegration between saving and investment once a level break is accommodated.

Keywords: Panel Cointegration; Residual-Based Cointegration Test; Structural Break; Monte Carlo Simulation; Feldstein-Horioka Puzzle. (search for similar items in EconPapers)
JEL-codes: C12 C32 C33 F21 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2005-01-26
New Economics Papers: this item is included in nep-ecm and nep-ets
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Citations: View citations in EconPapers (10)

Published in Oxford Bulletin of Economics and Statistics, 2006, pages 101-132.

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