Testing Weak Exogeneity in Cointegrated Panels

27 Pages Posted: 15 May 2013

See all articles by Enrique Moral-Benito

Enrique Moral-Benito

Banco de España; Universidad Carlos III de Madrid

Luis Servén

World Bank - Development Research Group (DECRG)

Multiple version iconThere are 2 versions of this paper

Date Written: May 14, 2013


For reasons of empirical tractability, analysis of cointegrated economic time series is often developed in a partial setting, in which a subset of variables is explictly modeled conditional on the rest. This approach yields valid inference only if the conditioning variables are weakly exogenous for the parameters of interest. This paper proposes a new test of weak exogeneity in panel cointegration models. The test has a limiting Gumbel distribution that is obtained by first letting T → ∞ and then letting N → ∞. We evaluate the accuracy of the asymptotic approximation in finite samples via simulation experiments. Finally, as an empirical illustration, we test weak exogeneity of disposable income and wealth in aggregate consumption.

Keywords: panel data, cointegration, weak exogeneity, Monte Carlo methods

JEL Classification: C23, C32

Suggested Citation

Moral-Benito, Enrique and Servén, Luis, Testing Weak Exogeneity in Cointegrated Panels (May 14, 2013). Banco de Espana Working Paper No. 1307. Available at SSRN: https://ssrn.com/abstract=2264726 or http://dx.doi.org/10.2139/ssrn.2264726

Enrique Moral-Benito (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903

Luis Servén

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
Washington, DC 20433
United States

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