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Inferential theory for heterogeneity and cointegration in large panels

Trapani, Lorenzo

Inferential theory for heterogeneity and cointegration in large panels Thumbnail


Authors

Lorenzo Trapani



Abstract

© 2020 Elsevier B.V. This paper provides an estimation and testing framework to assess the presence and the extent of slope heterogeneity and cointegration when the units are a mixture of spurious and/or cointegrating regressions. We propose two moment estimators for the degree of heterogeneity (measured by the dispersion of the slope coefficients around their average) and for the fraction of spurious regressions, which are found to be consistent in the whole parameter space. Based on these estimators, two tests for the null hypotheses of slope homogeneity and for cointegration are proposed. Monte Carlo simulations show that both tests have the correct size and satisfactory power.

Journal Article Type Article
Acceptance Date Feb 7, 2019
Online Publication Date Apr 30, 2020
Publication Date Apr 30, 2020
Deposit Date Feb 18, 2019
Publicly Available Date May 1, 2022
Journal Journal of Econometrics
Print ISSN 0304-4076
Electronic ISSN 1872-6895
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 220
Issue 2
Pages 474-503
DOI https://doi.org/10.1016/j.jeconom.2020.04.010
Keywords Large Panels; Heterogeneity; Cointegration; Spurious Regression; Method of Mo- ments
Public URL https://nottingham-repository.worktribe.com/output/1561882
Publisher URL https://www.sciencedirect.com/science/article/abs/pii/S0304407620301299?via%3Dihub

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