Testing for exogeneity in cointegrated panels
This paper proposes a test for the null that, in a cointegrated panel, the long-run correlation between the regressors and the error term is different from zero. As is well known, in such case the OLS estimator is T-consistent, whereas it is math formula-consistent when there is no endogeneity. Othe...
| Main Author: | |
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| Format: | Article |
| Published: |
Wiley
2015
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| Online Access: | https://eprints.nottingham.ac.uk/49228/ |
| _version_ | 1848797950398955520 |
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| author | Trapani, Lorenzo |
| author_facet | Trapani, Lorenzo |
| author_sort | Trapani, Lorenzo |
| building | Nottingham Research Data Repository |
| collection | Online Access |
| description | This paper proposes a test for the null that, in a cointegrated panel, the long-run correlation between the regressors and the error term is different from zero. As is well known, in such case the OLS estimator is T-consistent, whereas it is math formula-consistent when there is no endogeneity. Other estimators can be employed, such as the FM-OLS, that are math formula-consistent irrespective of whether exogeneity is present or not. Using the difference between the former and the latter estimator, we construct a test statistic which diverges at a rate math formula under the null of endogeneity, whilst it is bounded under the alternative of exogeneity, and employ a randomization approach to carry out the test. Monte Carlo evidence shows that the test has the correct size and good power. |
| first_indexed | 2025-11-14T20:12:01Z |
| format | Article |
| id | nottingham-49228 |
| institution | University of Nottingham Malaysia Campus |
| institution_category | Local University |
| last_indexed | 2025-11-14T20:12:01Z |
| publishDate | 2015 |
| publisher | Wiley |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | nottingham-492282020-05-04T20:08:03Z https://eprints.nottingham.ac.uk/49228/ Testing for exogeneity in cointegrated panels Trapani, Lorenzo This paper proposes a test for the null that, in a cointegrated panel, the long-run correlation between the regressors and the error term is different from zero. As is well known, in such case the OLS estimator is T-consistent, whereas it is math formula-consistent when there is no endogeneity. Other estimators can be employed, such as the FM-OLS, that are math formula-consistent irrespective of whether exogeneity is present or not. Using the difference between the former and the latter estimator, we construct a test statistic which diverges at a rate math formula under the null of endogeneity, whilst it is bounded under the alternative of exogeneity, and employ a randomization approach to carry out the test. Monte Carlo evidence shows that the test has the correct size and good power. Wiley 2015-08 Article PeerReviewed Trapani, Lorenzo (2015) Testing for exogeneity in cointegrated panels. Oxford Bulletin of Economics and Statistics, 77 (4). pp. 475-494. ISSN 1468-0084 http://onlinelibrary.wiley.com/doi/10.1111/obes.12072/full doi:10.1111/obes.12072 doi:10.1111/obes.12072 |
| spellingShingle | Trapani, Lorenzo Testing for exogeneity in cointegrated panels |
| title | Testing for exogeneity in cointegrated panels |
| title_full | Testing for exogeneity in cointegrated panels |
| title_fullStr | Testing for exogeneity in cointegrated panels |
| title_full_unstemmed | Testing for exogeneity in cointegrated panels |
| title_short | Testing for exogeneity in cointegrated panels |
| title_sort | testing for exogeneity in cointegrated panels |
| url | https://eprints.nottingham.ac.uk/49228/ https://eprints.nottingham.ac.uk/49228/ https://eprints.nottingham.ac.uk/49228/ |