Novel Panel Cointegration Tests Emending for Cross-Section Dependence with N Fixed

Kaddour Hadri, Eiji Kurozumi, Yao Rao

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Abstract

In this paper, we propose new cointegration tests for single equations and panels. Inboth cases, the asymptotic distributions of the tests, which are derived with N fixed andT → ∞, are shown to be standard normals. The effects of serial correlation and crosssectionaldependence are mopped out via long-run variances. An effective bias correctionis derived which is shown to work well in finite samples; particularly when N is smallerthan T. Our panel tests are robust to possible cointegration across units.
Original languageEnglish
Pages (from-to)363-411
JournalEconometrics Journal
Volume18
Issue number3
Early online date14 Jul 2015
DOIs
Publication statusPublished - Oct 2015

Keywords

  • cointegration, panel cointegration, cross-section dependence, bias correction, DOLS, FCLT.

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