Unit Roots and Cointegration in Panels

55 Pages Posted: 2 Sep 2005

See all articles by Jörg Breitung

Jörg Breitung

University of Bonn; Deutsche Bundesbank

M. Hashem Pesaran

University of Southern California - Department of Economics; University of Cambridge - Trinity College (Cambridge)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2005

Abstract

This paper provides a review of the literature on unit roots and cointegration in panels where the time dimension (T), and the cross section dimension (N) are relatively large. It distinguishes between the first generation tests developed on the assumption of the cross section independence, and the second generation tests that allow, in a variety of forms and degrees, the dependence that might prevail across the different units in the panel. In the analysis of cointegration, the hypothesis testing and estimation problems are further complicated by the possibility of cross section cointegration which could arise if the unit roots in the different cross section units are due to common random walk components.

Keywords: Panel unit roots, panel cointegration, cross section dependence, common effects

JEL Classification: C12, C15, C22, C23

Suggested Citation

Breitung, Jörg and Pesaran, M. Hashem, Unit Roots and Cointegration in Panels (October 2005). IEPR Working Paper No. 05.32, CESifo Working Paper Series No. 1565, Available at SSRN: https://ssrn.com/abstract=796190

Jörg Breitung

University of Bonn ( email )

Postfach 2220
Bonn, D-53012
Germany

Deutsche Bundesbank

Wilhelm-Epstein-Strasse 14
Frankfurt/Main D-60431
Germany

M. Hashem Pesaran (Contact Author)

University of Southern California - Department of Economics

3620 South Vermont Ave. Kaprielian (KAP) Hall 300
Los Angeles, CA 90089
United States

University of Cambridge - Trinity College (Cambridge) ( email )

United Kingdom

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