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Robust Unit Root and Cointegration Rank Tests for Panels and Large Systems

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Abstract

This study develops new tests for unit roots and cointegration rank in heterogeneous time series panels using methods that are robust to the presence of both incidental trends and cross sectional dependency of unknown form. Furthermore, the procedures do not require a choice of lag truncation or bandwidth to accommodate higher order serial correlation. The cointegration rank tests can also be implemented in relatively large dimensioned systems of equations for which conventional VECM based tests become infeasible. Monte Carlo simulations demonstrate that the procedures have high power and good size properties even in panels with relatively small dimensions.

Suggested Citation

  • Peter Pedroni & Tim Vogelsang, 2005. "Robust Unit Root and Cointegration Rank Tests for Panels and Large Systems," Department of Economics Working Papers 2005-04, Department of Economics, Williams College.
    • Handle: RePEc:wil:wileco:2005-04
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    File URL: https://web.williams.edu/Economics/wp/pedronirobust.pdf
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    More about this item

    Keywords

    Panel Unit Roots; Cointegration Rank Tests; Robust Autocovariance Estimation;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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