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Micro versus macro cointegration in heterogeneous panels

[journal article]

Trapani, Lorenzo; Urga, Giovanni

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Abstract We consider the issue of cross-sectional aggregation in nonstationary and heterogeneous panels where each unit cointegrates. We derive asymptotic properties of the aggregate estimate, and necessary and sufficient conditions for cointegration to hold in the aggregate relationship. We then analyze the case when cointegration does not carry through the aggregation process, and we investigate whether the violation of the formal conditions for perfect aggregation can still lead to an aggregate equation that is observationally equivalent to a cointegrated relationship. We derive a measure of the degree of noncointegration of the aggregate relationship and we explore its asymptotic properties. We propose a valid bootstrap approximation of the test. A Monte Carlo exercise evaluates size and power properties of the bootstrap test.
Keywords aggregation
Classification Methods and Techniques of Data Collection and Data Analysis, Statistical Methods, Computer Methods
Free Keywords Heterogeneous panels; Cointegration; Spurious regression; Bootstrap
Document language English
Publication Year 2009
Page/Pages p. 1-18
Status Postprint; peer reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)