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Micro versus macro cointegration in heterogeneous panels
[journal article]
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... view more
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.... view less
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
Journal
Journal of Econometrics, 155 (2009) 1
DOI
https://doi.org/10.1016/j.jeconom.2009.07.005
Status
Postprint; peer reviewed
Licence
PEER Licence Agreement (applicable only to documents from PEER project)