Hostname: page-component-78c5997874-8bhkd Total loading time: 0 Render date: 2024-11-07T01:20:00.079Z Has data issue: false hasContentIssue false
  • English
  • Français

COMMON STOCHASTIC TRENDS AND AGGREGATION IN HETEROGENEOUS PANELS

Published online by Cambridge University Press:  06 December 2006

štěpána Lazarová ,
Lorenzo Trapani  and
Giovanni Urga
štěpána Lazarová
Affiliation:
Queen Mary, University of London
Lorenzo Trapani
Affiliation:
Cass Business School and Università di Bergamo
Giovanni Urga
Affiliation:
Cass Business School
Get access Rights & Permissions [Opens in a new window]

Abstract

In nonstationary heterogeneous panels where the number of units is finite and where each unit cointegrates, a large number of conditions needs to be satisfied for cointegration to be preserved in the aggregate relationship. In reality, the conditions most likely will not hold. This paper takes a closer look at what happens when the conditions are violated. In this case, the question of whether an aggregate relationship is observationally equivalent to a cointegrating equation is of particular interest. We derive a measure of the degree of noncointegration of the aggregate estimates, and we explore its asymptotic properties.We thank Stephen Hall for inspiring discussions and comments during the initial stage of this research. We are grateful to participants in the 9th Conference on Panel Data (Geneva, June 22–23, 2000) and the 2000 Meeting of the Society for Economic Dynamics (San José, Costa Rica, June 29–July 2, 2000) and to colleagues at the University of Bergamo (Italy), London Business School (UK), and Cass Business School (UK) for useful comments. We have enormously benefited from comments and suggestions from two anonymous referees, the editor, Peter C.B. Phillips, and the co-editor, Bruce Hansen. The usual disclaimer applies. G. Urga acknowledges ESRC (Project R022251032) for financial support. Lorenzo Trapani acknowledges financial support from Cass Business School (RAE Development Funds Scheme) and ESRC Postdoctoral Fellowship Scheme (A.N. PTA-026-27-1107).

Type
Research Article
Information
Econometric Theory , Volume 23 , Issue 1 , February 2007 , pp. 89 - 105
Copyright
© 2007 Cambridge University Press

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Gonzalo, J. (1993) Cointegration and aggregation. Ricerche Economiche 47, 281–291.Google Scholar
Granger, C.W.J. (1993) Implications of seeing economic variables through an aggregation window. Ricerche Economiche 47, 269–279.Google Scholar
Hall, S., š. Lazarová, & G. Urga (1999) A principal components analysis of common stochastic trends in heterogeneous panel data: Some Monte Carlo evidence. Oxford Bulletin of Economics and Statistics 61, 749–767.Google Scholar
Kao, C., L. Trapani, & G. Urga (2005) The Asymptotics for Panel Models with Common Shocks. Mimeo, Cass Business School.
Park, J.Y. & P.C.B. Phillips (1988) Statistical inference in regressions with integrated processes, part 1. Econometric Theory 4, 468–497.Google Scholar
Park, J.Y. & P.C.B. Phillips (1989) Statistical inference in regressions with integrated processes, part 2. Econometric Theory 5, 95–131.Google Scholar
Pesaran, M.H. & R. Smith (1995) Estimating long-run relationships from dynamic heterogeneous panels. Journal of Econometrics 68, 79–113.Google Scholar
Phillips, P.C.B. & H.R. Moon (1999) Linear regression limit theory for nonstationary panel data. Econometrica 67, 1057–1111.Google Scholar
Sun, Y. (2004) Estimation of the long run relationship in nonstationary panel time series. Econometric Theory 20, 1227–1260.Google Scholar