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Testing for breaks in cointegrated panels

Author

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  • Di Iorio, Francesca
  • Fachin, Stefano

Abstract

Stability tests for cointegrating coefficients are known to have very low power with small to medium sample sizes. In this paper we propose to solve this problem by extending the tests to dependent cointegrated panels through the stationary bootstrap. Simulation evidence shows that the proposed panel tests improve considerably on asymptotic tests applied to individual series. As an empirical illustration we examined investment and saving for a panel of 14 European countries over the 1960-2002 period. While the individual stability tests, contrary to expectations and graphical evidence, in almost all cases do not reject the null of stability, the bootstrap panel tests lead to the more plausible conclusion that the long-run relationship between these two variables is likely to have undergone a break.

Suggested Citation

  • Di Iorio, Francesca & Fachin, Stefano, 2006. "Testing for breaks in cointegrated panels," MPRA Paper 3280, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:3280
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    References listed on IDEAS

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    12. repec:bla:obuest:v:61:y:1999:i:0:p:653-70 is not listed on IDEAS
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    Cited by:

    1. Le, Thai-Ha & Chang, Youngho & Park, Donghyun, 2016. "Governance, Vulnerability to Climate Change, and Green Growth: International Evidence," ADB Economics Working Paper Series 500, Asian Development Bank.
    2. Di Iorio, Francesca & Fachin, Stefano, 2012. "A note on the estimation of long-run relationships in panel equations with cross-section linkages," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 6, pages 1-18.
    3. Ketenci, Natalya, 2013. "The Feldstein–Horioka puzzle in groupings of OECD members: A panel approach," Research in Economics, Elsevier, vol. 67(1), pages 76-87.
    4. Di Iorio, Francesca & Fachin, Stefano, 2008. "A note on the estimation of long-run relationships in dependent cointegrated panels," MPRA Paper 12053, University Library of Munich, Germany.
    5. Di Iorio, Francesca & Fachin, Stefano, 2007. "Testing for Breaks in Cointegrated Panels - with an Application to the Feldstein-Horioka Puzzle," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 1, pages 1-23.

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    More about this item

    Keywords

    Panel cointegration; stationary bootstrap; parameter stability tests;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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