Abstract
Spurious regression analysis in panel data when the time series are cross-section dependent is analysed in the paper. The set-up includes (possibly unknown) multiple structural breaks that can affect both the deterministic and the common factor components. We show that consistent estimation of the long-run average parameter is possible once cross-section dependence is controlled using cross-section averages in the spirit of Pesaran's common correlated effects approach. This result is used to design individual and panel cointegration test statistics that accommodate the presence of structural breaks that can induce parameter instabilities in the deterministic component, the cointegration vector and the common factor loadings.
Original language | English |
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Number of pages | 12 |
Journal | Journal of Business and Economic Statistics |
Early online date | 11 Apr 2024 |
DOIs | |
Publication status | E-pub ahead of print - 11 Apr 2024 |
Bibliographical note
Acknowledgment:Carrion-i-Silvestre acknowledges the financial support from the grant PID2020-114646RB-C41 funded by MCIN/AEI/10.13039/501100011033.
Keywords
- common factors
- cross-section dependence
- spurious regression
- structural breaks