Scandinavian Working Papers in Economics
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Department of Economics, Lund University Working Papers, Department of Economics, Lund University

No 2005:8:
New Simple Tests for Panel Cointegration

Joakim Westerlund ()

Abstract: We propose two new simple residual-based panel data tests for the null of no cointegration. The tests are simple because they do not require any correction for the temporal dependencies of the data. Yet they are able to accommodate individual specific short-run dynamics, individual specific intercept and trend terms, as well as individual specific slope parameters. A third test that is modified to accommodate for cross-sectionally dependent data is also proposed. We derive the limiting distributions of the tests and show that they are free of nuisance parameters. Our Monte Carlo results suggest that the asymptotic results are borne out well even in very small samples.

Keywords: Panel Cointegration; Residual-Based Tests; Cross-Sectional Dependence; Monte Carlo Simulation.; (follow links to similar papers)

JEL-Codes: C12; C31; C33; (follow links to similar papers)

26 pages, January 26, 2005

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This paper is published as:
Westerlund, Joakim, (2005), 'New Simple Tests for Panel Cointegration', Econometric Reviews, Vol. 24, No. 3, pages 297-316

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