Testing Weak Exogeneity in Cointegrated Panels
For reason of empirical tractability, analysis of cointegrated economic time series is often developed in a partial setting, in which a subset of variables is explicitly modeled conditional on the rest. This approach yields valid inference only if...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank Group, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2014/09/20230197/testing-weak-exogeneity-cointegrated-panels http://hdl.handle.net/10986/20372 |
| Summary: | For reason of empirical tractability,
analysis of cointegrated economic time series is often
developed in a partial setting, in which a subset of
variables is explicitly modeled conditional on the rest.
This approach yields valid inference only if the
conditioning variables are weakly exogenous for the
parameters of interest. This paper proposes a new test of
weak exogeneity in panel cointegration models. The test has
a limiting Gumbel distribution that is obtained by first
letting the time dimension of the panel go to infinity and
then letting its cross-sectional dimension go to infinity.
The paper evaluates the accuracy of the asymptotic
approximation in finite samples via simulation experiments.
Finally, as an empirical illustration, the paper reports
tests of weak exogeneity of disposable income and wealth in
an aggregate consumption equation. |
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