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

No 2005:12:
Testing for Panel Cointegration with Multiple Structural Breaks

Joakim Westerlund ()

Abstract: This paper proposes an LM test for the null hypothesis of cointegration that allows for the possibility of multiple structural breaks in both the level and trend of a cointegrated panel regression. The test is general enough to allow for endogenous regressors, serial correlation and an unknown number of breaks that may be located at different dates for different individuals. We derive the limiting distribution of the test and conduct a small Monte Carlo study to investigate its finite sample properties. In our empirical application to the Feldstein-Horioka Puzzle, we find evidence of cointegration between saving and investment once a level break is accommodated.

Keywords: Panel Cointegration; Residual-Based Cointegration Test; Structural Break; Monte Carlo Simulation; Feldstein-Horioka Puzzle.; (follow links to similar papers)

JEL-Codes: C12; C32; C33; F21; (follow links to similar papers)

35 pages, January 26, 2005

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This paper is published as:
Westerlund, Joakim, (2006), 'Testing for Panel Cointegration with Multiple Structural Breaks', Oxford Bulletin of Economics and Statistics, Vol. 68, pages 101-132

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