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Panel Cointegration: Asymptotic and Finite Sample Properties of Pooled Time Series Tests with an Application to the PPP Hypothesis

Peter Pedroni

No 2004-15, Department of Economics Working Papers from Department of Economics, Williams College

Abstract: We examine properties of residual-based tests for the null of no cointegration for dynamic panels in which both the short-run dynamics and the long-run slope coefficients are permitted to be heterogeneous across individual members of the panel. The tests also allow for individual heterogeneous fixed effects and trend terms, and we consider both pooled within dimension tests and group mean between dimension tests. We derive limiting distributions for these and show that they are normal and free of nuisance parameters+ We also provide Monte Carlo evidence to demonstrate their small sample size and power performance, and we illustrate their use in testing purchasing power parity for the post-Bretton Woods period.

Keywords: Cointegration; PPP; Time Series (search for similar items in EconPapers)
JEL-codes: C32 C33 F31 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2004
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Citations: View citations in EconPapers (2371)

Published in Econometric Theory, 20, 597-325, 2004.

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https://web.williams.edu/Economics/wp/pedronipanelcointegration.pdf

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Journal Article: PANEL COINTEGRATION: ASYMPTOTIC AND FINITE SAMPLE PROPERTIES OF POOLED TIME SERIES TESTS WITH AN APPLICATION TO THE PPP HYPOTHESIS (2004) Downloads
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