Title: Testing for panel cointegration in high dimensional data in the presence of cross-sectional dependency

Authors: Rashid Mansoor; Kristofer Månsson; Pär Sjölander

Addresses: Department of Statistical Science, University College London, Gower Street, London, WC1E 6BT, UK ' Jönköping International Business School, Box 1026, 55 111 Jönköping, Sweden ' Jönköping International Business School, Box 1026, 55 111 Jönköping, Sweden

Abstract: This paper introduces some new methods to test for panel cointegration in the error correction framework. These methods are proposed since the previous approaches do not perform well when the number of cross-sectional units (N) is approximately equal to the number of time periods (T). By means of Monte Carlo simulations we investigate the size and power properties when N and T increase simultaneously, i.e., N/T → c where 0 < c ≤ 1. Based on the simulated results we may recommend a test for panel cointegration in high dimensional setting with cross-sectional dependency.

Keywords: error correction model; panel cointegration; increasing dimension.

DOI: 10.1504/IJCEE.2021.118482

International Journal of Computational Economics and Econometrics, 2021 Vol.11 No.4, pp.406 - 418

Accepted: 18 Nov 2020
Published online: 27 Oct 2021 *

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