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On the Estimation and Inference of a Cointegrated Regression in Panel Data

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Author Info
Chihwa Kao () (Center for Policy Research, Maxwell School, Syracuse University)
Min-Hsien Chiang

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Abstract

The main contribution of this paper is to add to the literature by suggesting a dynamic OLS (DOLS) estimator and providing a serious comparison of the finite sample properties of the OLS, fully modified OLS (FMOLS), and DOLS estimators in panel cointegrated regression models. Monte Carlo results illustrate the sampling behavior of the proposed estimators and show that (1) the OLS estimator has a non-negligible bias in finite samples, (2) the FMOLS estimator does not improve over the OLS estimator in general, and (3) the DOLS outperforms both the OLS and FMOLS estimators.

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File URL: http://www-cpr.maxwell.syr.edu/cprwps/pdf/wp2.pdf
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Publisher Info
Paper provided by Center for Policy Research, Maxwell School, Syracuse University in its series Center for Policy Research Working Papers with number 2.

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Length: 37 pages
Date of creation: Mar 1999
Date of revision:
Handle: RePEc:max:cprwps:2

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Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data

References listed on IDEAS
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  1. Park, J.Y. & Ogaki, M., 1991. "Seemingly Unrelated Canonical Cointegrating Regressions," RCER Working Papers 280, University of Rochester - Center for Economic Research (RCER).
  2. Peter C.B. Phillips & Victor Solo, 1989. "Asymptotics for Linear Processes," Cowles Foundation Discussion Papers 932, Cowles Foundation, Yale University. [Downloadable!]
  3. Chihwa Kao & Suzanne McCoskey, 1997. "A Residual-Based Test Of The Null Of Cointegration In Panel Data," Econometrics 9711002, EconWPA. [Downloadable!]
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  4. Phillips, P C B & Durlauf, S N, 1986. "Multiple Time Series Regression with Integrated Processes," Review of Economic Studies, Blackwell Publishing, vol. 53(4), pages 473-95, August. [Downloadable!] (restricted)
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  5. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July. [Downloadable!] (restricted)
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  6. Breitung, Jorg & Meyer, Wolfgang, 1994. "Testing for Unit Roots in Panel Data: Are Wages on Different Bargaining Levels Cointegrated?," Applied Economics, Taylor and Francis Journals, vol. 26(4), pages 353-61, April.
  7. Quah, D., 1993. "Exploiting Cross Section Variation for Unit Root Inference in Dynamic Data," Papers 549, Stockholm - International Economic Studies.
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  8. Phillips, Peter C B & Loretan, Mico, 1991. "Estimating Long-run Economic Equilibria," Review of Economic Studies, Blackwell Publishing, vol. 58(3), pages 407-36, May. [Downloadable!] (restricted)
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  9. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July. [Downloadable!] (restricted)
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  10. Summers, Robert & Heston, Alan, 1991. "The Penn World Table (Mark 5): An Expanded Set of International Comparisons, 1950-1988," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 327-68, May. [Downloadable!] (restricted)
  11. Peter C.B. Phillips & Hyungsik R. Moon, 1999. "Linear Regression Limit Theory for Nonstationary Panel Data," Cowles Foundation Discussion Papers 1222, Cowles Foundation, Yale University. [Downloadable!]
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  12. Phillips, Peter C B, 1995. "Fully Modified Least Squares and Vector Autoregression," Econometrica, Econometric Society, vol. 63(5), pages 1023-78, September. [Downloadable!] (restricted)
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  13. Peter C.B. Phillips & Bruce E. Hansen, 1988. "Statistical Inference in Instrumental Variables," Cowles Foundation Discussion Papers 869R, Cowles Foundation, Yale University, revised Apr 1989. [Downloadable!]
  14. Gonzalo, Jesus, 1994. "Five alternative methods of estimating long-run equilibrium relationships," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 203-233. [Downloadable!] (restricted)
  15. Andrew Levin & Chien-Fu Lin, 1993. "Unit Root Tests in Panel Data: New Results," University of California at San Diego, Economics Working Paper Series 93-56, Department of Economics, UC San Diego. [Downloadable!]
  16. Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
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