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Panel Cointegration Testing in the Presence of Linear Time Trends

Department of Business and Economics, Goethe University Frankfurt, Theodor-W.-Adorno-Platz 4, 60323 Frankfurt, Germany
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Academic Editor: Katarina Juselius
Econometrics 2016, 4(4), 45; https://doi.org/10.3390/econometrics4040045
Received: 15 May 2016 / Revised: 28 September 2016 / Accepted: 20 October 2016 / Published: 1 November 2016
(This article belongs to the Special Issue Recent Developments in Cointegration)
We consider a class of panel tests of the null hypothesis of no cointegration and cointegration. All tests under investigation rely on single-equations estimated by least squares, and they may be residual-based or not. We focus on test statistics computed from regressions with intercept only (i.e., without detrending) and with at least one of the regressors (integrated of order 1) being dominated by a linear time trend. In such a setting, often encountered in practice, the limiting distributions and critical values provided for and applied with the situation “with intercept only” are not correct. It is demonstrated that their usage results in size distortions growing with the panel size N. Moreover, we show which are the appropriate distributions, and how correct critical values can be obtained from the literature. View Full-Text
Keywords: single-equations; large N asymptotics; integrated series with drift single-equations; large N asymptotics; integrated series with drift
MDPI and ACS Style

Hassler, U.; Hosseinkouchack, M. Panel Cointegration Testing in the Presence of Linear Time Trends. Econometrics 2016, 4, 45.

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