Document Type

Working Paper

Date

2007

Embargo Period

6-28-2012

Keywords

panel cointegration models, cross-sectional dependence, global stochastic trends

Language

English

Disciplines

Econometrics

Description/Abstract

This paper studies estimation of panel cointegration models with cross-sectional dependence generated by unobserved global stochastic trends. The standard least squares estimator is, in general, inconsistent owing to the spuriousness induced by the unobservable I(1) trends. We propose two iterative procedures that jointly estimate the slope parameters and the stochastic trends. The resulting estimators are referred to respectively as CupBC (continuously updated and bias-corrected) and the CupFM (continuously updated and fully modified) estimators. We establish their consistency and derive their limiting distributions. Both are asymptotically unbiased and asymptotically normal and permit inference to be conducted using standard test statistics. The estimates are also valid when there are mixed stationary and non-stationary factors, as well as when the factors are all stationary.

Additional Information

Harvest from RePEc at http://repec.org

Source

Metadata from RePEc

Included in

Econometrics Commons

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