Testing for exogeneity in cointegrated panels

Trapani, Lorenzo (2015) Testing for exogeneity in cointegrated panels. Oxford Bulletin of Economics and Statistics, 77 (4). pp. 475-494. ISSN 1468-0084

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Abstract

This paper proposes a test for the null that, in a cointegrated panel, the long-run correlation between the regressors and the error term is different from zero. As is well known, in such case the OLS estimator is T-consistent, whereas it is math formula-consistent when there is no endogeneity. Other estimators can be employed, such as the FM-OLS, that are math formula-consistent irrespective of whether exogeneity is present or not. Using the difference between the former and the latter estimator, we construct a test statistic which diverges at a rate math formula under the null of endogeneity, whilst it is bounded under the alternative of exogeneity, and employ a randomization approach to carry out the test. Monte Carlo evidence shows that the test has the correct size and good power.

Item Type: Article
Additional Information: This is the peer reviewed version of the following article: Trapani, L. (2015), Testing for Exogeneity in Cointegrated Panels. Oxf Bull Econ Stat, 77: 475–494, which has been published in final form at http://dx.doi.org/10.1111/obes.12072. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.
Schools/Departments: University of Nottingham, UK > Faculty of Social Sciences > School of Economics
Identification Number: 10.1111/obes.12072
Depositing User: Eprints, Support
Date Deposited: 22 Jan 2018 09:52
Last Modified: 23 Jan 2018 17:09
URI: http://eprints.nottingham.ac.uk/id/eprint/49228

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