Banerjee, Anindya Carrion i Silvestre, Josep Lluís
Year of Publication:
Birmingham Business School Discussion Paper Series 2017-02
Spurious regression analysis in panel data when the time series are cross-section dependent is analyzed in the paper. We show that consistent estimation of the long-run average parameter is possible once we control for cross-section dependence using cross-section averages in the spirit of the common correlated effects approach in Pesaran (2006). This result is used to design a panel cointegration test statistic accounting for cross-section dependence. The performance of the proposal is investigated in comparison with factor-based methods to control for cross-section dependence when strong, semi-weak and weak cross-section dependence may be present.
panel cointegration cross-section dependence common factors spatial econometrics