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

No 2006:13:
Simple Tests for Cointegration in Dependent Panels with Structural Breaks

Joakim Westerlund () and David Edgerton ()

Abstract: This paper develops two very simple tests for the null hypothesis of no cointegration in panel data. The tests are general enough to allow for heteroskedastic and serially correlated errors, unit specific time trends, cross-sectional dependence and an unknown structural break in both the intercept and slope of the cointegrated regression, which may be located different dates for different units. The limiting distributions of the tests are derived, and are found to be normal and free of nuisance parameters under the null. A small simulation study is also conducted to investigate the small-sample properties of the tests.

Keywords: Panel Cointegration; Cointegration Test; Structural Break; Cross-Sectional Dependence; Common Factor; (follow links to similar papers)

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

32 pages, May 4, 2006, Revised January 28, 2007

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This paper is published as:
Westerlund, Joakim and David Edgerton, (2008), 'Simple Tests for Cointegration in Dependent Panels with Structural Breaks', Oxford Bulletin of Economics and Statistics, Vol. 70, pages 665-704

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