Testing for panel cointegration with multiple structural breaks

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Abstract

This paper proposes a Lagrange multiplier (LM) test for the null hypothesis of cointegration that allows for the possibility of multiple structural breaks in both the level and trend of a cointegrated panel regression. The test is general enough to allow for endogenous regressors, serial correlation and an unknown number of breaks that may be located at different dates for different individuals. We derive the limiting distribution of the test and conduct a small Monte Carlo study to investigate its finite sample properties. In our empirical application to the solvency of the current account, we find evidence of cointegration between saving and investment once a level break is accommodated.

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  • Economics
Original languageEnglish
Pages (from-to)101-132
JournalOxford Bulletin of Economics and Statistics
Volume68
Issue number1
Publication statusPublished - 2006
Publication categoryResearch
Peer-reviewedYes