Cointegration Vector Estimation by Panel DOLS and Long-Run Money Demand

Nelson Mark and Donggyu Sul ()

No 287, NBER Technical Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the panel DOLS estimator of a homogeneous cointegration vector for a balanced panel of N individuals observed over T time periods. Allowable heterogeneity across individuals include individual-specific time trends, individual-specific fixed effects and time-specific effects. The estimator is fully parametric, computationally convenient, and more precise than the single equation estimator. For fixed N as T approaches infinity, the estimator converges to a function of Brownian motions and the Wald statistic for testing a set of linear constraints has a limiting chi-square distribution. The estimator also has a Gaussian sequential limit distribution that is obtained first by letting T go to infinity then letting N go to infinity. In a series of Monte Carlo experiments, we find that the asymptotic distribution theory provides a reasonably close approximation to the exact finite sample distribution. We use panel dynamic OLS to estimate coefficients of the long-run money demand function from a panel of 19 countries with annual observations that span from 1957 to 1996. The estimated income elasticity is 1.08 (asymptotic s.e.=0.26) and the estimated interest rate semi-elasticity is -0.02 (asymptotic s.e.=0.01).

JEL-codes: C1 E4 (search for similar items in EconPapers)
Date: 2002-12
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-mon
Note: TWP
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Citations: View citations in EconPapers (37)

Published as Mark, Nelson C. and Donggyu Sul. "Cointegration Vector Estimation By Panel DOLS And Long-Run Money Demand," Oxford Bulletin of Economics and Statistics, 2003, v65(5,Dec), 665-680.

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Journal Article: Cointegration Vector Estimation by Panel DOLS and Long‐run Money Demand (2003)
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