Re: st: Panel Cointegration

[Ian Sue Wing <isw@bu.edu>]

> Hello,
> Are there any -ado files that address panel cointegration tests, such as
> Pedroni, Levin & Lin, Harris & Tzavalis, Maddala & Kim?  Or anything dealing
> with DOLS(Dynamic OLS) or FMOLS (Fully Modified OLS) estimation?
>  
Other Statalisters probably have much more detailed knowledge on this 
topic than I do, but here goes...

For the Pedroni heterogeneous panel tests, use RATS. Everything is set 
up for you there. The Kao homogeneous panel tests can be easily coded in 
a do file for the DF-rho and DF-rho-star cases. The other tests require 
computation of the nuisance parameters in the expressions for the test 
statistics---but Kao's monte carlo analysis finds that the DF-rho-star 
test out-performs the others most of the time. See the papers on Kao's 
website for details.

As far as estimation goes, you can perform DOLS easily in a panel 
setting with -xtreg, fe-. Just add forward and lagged differences of the 
covariates in systematic combinations, testing for critical lag and lead 
lengths after each regression using the Bayes Information Criterion. 
This test is available in -icomp-. This process may well be tedious, but 
again you can write a do file that loops over lags and leads, whose 
stopping criterion is based on the values returned by the -icomp- tests. 
I haven't found a way to implement FMOLS in Stata.

To check the results of your tests of cointegration in a heterogeneous 
vs. homogeneous panel, it may prove useful to compare the results of 
LSDV, DOLS and Swamy random coefficient (see -xtrchh2-) specifications 
of your estimating equation, evaluating the extent to which the 
parameters remain constant across the different specifications, 
especially if you include a time trend. If I remember correctly, a very 
high t-stat on the trend (10 or more) is often indicative of spurious 
regression problems in a time-series context.

-i

--
Ian Sue Wing
Assistant Professor
Center for Energy & Environmental Studies
Department of Geography & Environment
Boston University
675 Commonwealth Ave. Rm. 141, Boston MA 02215
Phone: (617) 353-5741 * Fax: (617) 353-5986 

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