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Testing for Multicointegration in Panel Data with Common Factors *
Author(s) -
BerenguerRico Vanessa,
CarrioniSilvestre Josep Lluís
Publication year - 2006
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/j.1468-0084.2006.00453.x
Subject(s) - panel data , econometrics , economics
This paper addresses the concept of multicointegration in a panel data framework and builds upon the panel data cointegration procedures developed in Pedroni [ Econometric Theory (2004), Vol. 20, pp. 597–625]. When individuals are either cross‐section independent, or cross‐section dependence can be removed by cross‐section demeaning, our approach can be applied to the wider framework of mixed I (2) and I (1) stochastic processes. The paper also deals with the issue of cross‐section dependence using approximate common‐factor models. Finite sample performance is investigated through Monte Carlo simulations. Finally, we illustrate the use of the procedure investigating an inventories, sales and production relationship for a panel of US industries.