271 research outputs found
Cointegration in panel data with breaks and cross-section dependence
The power of standard panel cointegration statistics may be affected by misspecification errors if proper account is not taken of the presence of structural breaks in the data. We propose modifications to allow for one structural break when testing the null hypothesis of no cointegration that retain good properties in terms of empirical size and power. Response surfaces to approximate the finite sample moments that are required to implement the statistics are provided. Since panel cointegration statistics rely on the assumption of cross-section independence, a generalisation of the tests to the common factor framework is carried out in order to allow for dependence among the units of the panel. JEL Classification: C12, C22common factors, cross-section dependence, Panel Cointegration, structural break
Cointegration in Panel Data with Breaks and Cross-Section Dependence
The power of standard panel cointegration statistics may be affected by misspecification errors if proper account is not taken of the presence of structural breaks in the data. We propose modifications to allow for one structural break when testing the null hypothesis of no cointegration that retain good properties in terms of empirical size and power. Response surfaces to approximate the finite sample moments that are required to implement the statistics are provided. Since panel cointegration statistics rely on the assumption of cross-section independence, a generalisation of the tests to the common factor framework is carried out in order to allow for dependence among the units of the panel.Panel cointegration, structural break, common factors, cross-section dependence
Testing the Null of Cointegration with Structural Breaks
In this paper we propose an LM-Type statistic to test the null hypothesis of cointegration allowing for the possibility of a structural break, in both the deterministic and the cointegration vector. Our proposal focuses on the presence of endogenous regressors and analyses which estimation method provides better results. The test has been designed to be used as a complement to the usual non-cointegration tests in order to obtain stronger evidence of cointegration. We consider the cases of known and unknown break date. In the latter case, we show that minimizing the SSR results in a super-consistent estimator of the break fraction. Finally, the behaviour of the tests is studied through Monte Carlo experiments.cointegration, strcutural breaks, KPSS test.
Testing Panel Cointegration with Unobservable Dynamic Common Factors
The paper proposes statistics to test the null hypothesis of no cointegration in panel data when common factors drive the cross sectional dependence. We consider both the case in which regressors are independent of the common factors and the case in which regressors are correlated with the common factors. The proposed test statistics have limiting distributions that are independent of the common factors, making it possible to pool the individual statistics. Simulations show that the proposed procedures have good finite sample properties.panel cointegration, common factors, cross sectional dependence
The KPSS Test with Two Structural Breaks
In this paper we generalize the KPSS-type test to allow for two structural breaks. Seven models have been de?ned depending on the way that the structural breaks a¤ect the time series behaviour. The paper derives the limit distribution of the test both under the null and the alternative hypotheses and conducts a set of simulation experiments to analyse the performance in finite samples.Stationary tests, structural breaks, unit root.
Measuring Persistence of U.S. City Prices: New Evidence from Robust Tests
This paper revisits the empirical analysis in Cecchetti, Mark and Sonora (2002) involving long-span U.S. city prices, who estimated the persistence of U.S. price differentials to be around nine years. After controlling for the structural breaks in the data, we find that U.S. city price level differentials are I(0) stationary processes with the median half-life of convergence ranged between 1.5 and 2.6 years, estimates that are in accordance with what should be expected from a highly integrated economy as the United States. Our results are also robust to a pairwise tests of price level convergence.Purchasing power parity; Price level convergence; Half-life; Multiple structural breaks; Pairwise convergence.
Multicointegration, polynomial cointegration and I(2) cointegration with structural breaks. An application to the sustainability of the US external deficit.
In this paper we model the multicointegration relation, allowing for one structural break. Since multicointegration is a particular case of polynomial or I(2) cointegration, our proposal can also be applied in these cases. The paper proposes the use of a residualbased Dickey-Fuller class of statistic that accounts for one known or unknown structural break. Finite sample performance of the proposed statistic is investigated by using Monte Carlo simulations, which reveals that the statistic shows good properties in terms of empirical size and power. We complete the study with an empirical application of the sustainability of the US external deficit. Contrary to existing evidence, the consideration of one structural break leads to conclude in favour of the sustainability of the US external deficit.I(2) processes, multicointegration, polynomial cointegration, structural break, sustainability of external deficit.
Another Look at the Null of Stationary RealExchange Rates. Panel Data with Structural Breaks and Cross-section Dependence
This paper re-examines the null of stationary of real exchange rate for a panel of seventeen OECD developed countries during the post-Bretton Woods era. Our analysis simultaneously considers both the presence of cross-section dependence and multiple structural breaks that have not received much attention in previous panel methods of long-run PPP. Empirical results indicate that there is little evidence in favor of PPP hypothesis when the analysis does not account for structural breaks. This conclusion is reversed when structural breaks are considered in computation of the panel statistics. We also compute point estimates of half-life separately for idiosyncratic and common factor components and find that it is always below one year.Purchasing power parity, Half-lives, Panel unit roottests, Multiple structural breaks, Cross-section dependence.
Panel Data Stochastic Convergence Analysis of the Mexican Regions
The stochastic convergence amongst Mexican Federal entities is analyzed in panel data framework. The joint consideration of cross-section dependence and multiple structural breaks is required to ensure that the statistical inference is based on statistics with good statistical properties. Once these features are accounted for, evidence in favour of stochastic convergence is found. Since stochastic convergence is a necessary, yet insufficient condition for convergence as predicted by economic growth models, the paper also investigates whether beta-convergence process has taken place. We found that the Mexican states have followed either heterogeneous convergence patterns or divergence process throughout the analyzed period.Stochastic convergence, beta-convergence, non-stationarity panel data tests, cross-section dependence, multiple structural breaks.
Testing for hysteresis in unemployment in OECD countries. New evidence using stationarity panel tests with breaksâ€
This paper tests hysteresis effects in unemployment using panel data for 19 OECD countries covering the period 1956-2001. The tests exploit the cross-section variations of the series, and additionally, allow for a different number of endogenous breakpoints in the unemployment series. The critical values are simulated based on our specific panel sizes and time periods. The findings stress the importance of accounting for exogenous shocks in the series and give support to the natural-rate hypothesis of unemployment for the majority of the countries analyzed.
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