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Dealing with unobservable common trends in small samples: a panel cointegration approach

Non stationary panel models allowing for unobservable common trends have recently become very popular. However, standard methods, which are based on factor extraction or models augmented with cross-section averages, require large sample sizes, not always available in practice. In these cases we propose the simple and robust alternative of augmenting the panel regres- sion with common time dummies. The underlying assumption of additive e¤ects can be tested by means of a panel cointegration test, with no need of estimating a general interactive e¤ects model. An application to modelling labour productivity growth in the four major European economies (France, Germany, Italy and UK) illustrates the method.
Year of publication:
2014-11
Authors: Di Iorio, Francesca ; Fachin, Stefano
Institutions: Dipartimento di Scienze Statistiche, Facoltà di Scienze Statistiche
Subject: Common trends | Panel cointegration | TFP
Extent:
application/pdf
Series:
Type of publication: Book / Working Paper
Notes:
Number 2014/5 19 pages
Classification: C23 - Models with Panel Data ; C15 - Statistical Simulation Methods; Monte Carlo Methods ; E2 - Consumption, Saving, Production, Employment, and Investment
Source:
Persistent link: https://ebvufind01.dmz1.zbw.eu/10010959518
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