Testing for Breaks in Cointegrated Panels − with an Application to the Feldstein-Horioka Puzzle

Francesca Di Iorio · Stefano Fachin

30 citations0/0 files storedEconomics

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Abstract

Abstract Stability tests for cointegrating coefficients are known to have very low power with small to medium sample sizes. In this paper we propose to solve this problem by extending the tests to dependent cointegrated panels through the stationary bootstrap. Simulation evidence shows that the proposed panel tests improve considerably on asymptotic tests applied to individual series. As an empirical illustration we examined investment and saving for a panel of European countries over the 1960-2002 period. While the individual stability tests, contrary to expectations and graphical evidence, in almost all cases do not reject the null of stability, the bootstrap panel tests lead to the more plausible conclusion that the long-run relationship between these two variables is likely to have undergone a break.

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References

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2018Income level and the emissions, energy, and growth nexus: Evidence from Asia and the Pacific 2015Dynamics between energy, output, openness and financial development in sub-Saharan African countries 2010Systems GMM estimates of the Feldstein–Horioka puzzle for the OECD countries and tests for structural breaks 2011A Time‐series Approach to the Feldstein–Horioka Puzzle with Panel Data from the OECD Countries

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