Abstract
Spurious regression analysis in panel data when the time series are cross-section dependent is analyzed in the paper. We show that consistent estimation of the long-run average parameter is possible once we control for cross-section dependence using cross-section averages in the spirit of the common correlated effects approach in Pesaran (2006). This result is used to design a panel cointegration test statistic accounting for cross-section dependence. The performance of the proposal is investigated in comparison with factor-based methods to control for cross-section dependence when strong, semi-weak and weak cross-section dependence may be present.
Original language | English |
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Pages (from-to) | 610-636 |
Number of pages | 27 |
Journal | Journal of Time Series Analysis |
Volume | 38 |
Issue number | 4 |
Early online date | 8 Mar 2017 |
DOIs | |
Publication status | Published - Jul 2017 |
Keywords
- C12
- C22
- panel cointegration
- cross-section dependence
- common factors
- spatial econometrics