Title: Panel data cointegration analysis with structural instabilities
Authors: Josep Lluis Carrion-i-Silvestre - Universitat de Barcelona (Spain) [presenting]
Anindya Banerjee - University of Birmingham (United Kingdom)
Abstract: Spurious regression analysis in panel data when time series are cross-section dependent is analyzed. The set-up is general enough to include multiple structural breaks that can affect the deterministic component and the common factor component. We show that consistent estimation of the long-run average parameter is possible once cross-section dependence is controlled using cross-section averages in the spirit of the common correlated effects approach. This result is used to design individual and panel cointegration test statistics that accommodate the presence of structural breaks that can induce parameter instabilities on the deterministic component, the cointegration vector and the common factor loadings.