New Tests for Cointegration in Heterogeneous Panels

Abstract

This paper makes the following contributions to the existing literature on panel cointegration. First, two new tests based on the principle of weighted symmetric estimation are proposed for panel cointegration testing. Second, the asymptotic distributions of these new tests are examined, and these are shown to be well defined Weiner processes that are free of nuisance parameters. Third, the size and power properties of the proposed tests are studied with a Monte Carlo simulation, and their properties are found to be superior to those of the existing tests across a range of environments.