The first thing you should do always is to sketch the englegranger test, explaining the null and the alternative hypotheses. I have 3 variables which are all stationary at 2nd order difference. In the raotbl3 data set, we test for cointegration between the consumption expenditure, and income and wealth variables. The test statistics for the cointegration tests have been normalized to the n0,1 distribution as the command states under the output, and so to find the pvalues you would follow the exact same procedure as you would with any other standard normal test statistic z score. Cointegration and the ecm document from says i should use. In this post, i use simulated data to show the asymptotic properties of an ordinary leastsquares ols estimator under cointegration and spurious regression. First, it allows stata users to compute pedroni s obes 1999, restat 2001 seven test statistics under a null of no cointegration in a heterogeneous panel medium to large n, large t with one or more nonstationary regressors. Second, it computes pedronis group mean panel dynamic ordinary least. Asymptotic normal distribution of these tests allows a straightforward comparison. As a member of data science central dsc, american economic association aes, royal economic society res, international health economics association ihea and the econometrics society, i have been working closely with top academics in economics. The johansen trace test was derived by johansen 1991 in order to test for cointegration in multivariate time series. Note that cointegration test tests whether the residual is stationary, so indeed you may use a unit root test to do that. Panel cointegration analysis with xtpedroni stata journal article.
Testing for cointegration errorcorrection representation residualbased cointegration tests englegranger eg 2step procedure. It is shown that the limiting distribution of the test statistic for cointegration can be made free of nuisance parameters when. Within these three i1 variables we can find up to two cointegrating. Can someone help with a panel data cointegration test. The popular englegranger residual based test for cointegration has low power when applied to a single time series but has good power when statistics from many individual panels are combined. For instance, we have established that the levels of the fed funds rate and the 3year bond rate are nonstationary. Cointegration analysis of oil prices and consumer price. Null of cointegration against the alternative of no cointegration yongcheol shin university of cambridge this paper proposes a residualbased test of the null of cointegration using a structural single equation model. The df test can be applied to the residuals using 7 e. One way to test the existence of cointegration is the regression method see, engle and granger 1986 eg. And in stata, we can test for cointegration using the xtcointtest command. We will make use of the urca library, written by bernhard pfaff and matthieu stigler, which wraps up the johansen test in an easy to call function ca. Hello all, i am trying to run panel cointegration tests in a heterogeneous panel. The income elasticity is not different from unity, and the marginal propensity to consume out of wealth is in a range of 3 to 5 per cent.
Eviews offers a extensive array of powerful features for data handling, statistics and econometric analysis, forecasting and simulation, data presentation, and programming. The cointegration techniques are tested on the raotbl3 data set, the world economic indicators data set and the ukpppuipdata set using statistical software r. Pretest the variables for the presence of unit roots done above and check if they are integrated of the same order. With the help of eviews 7 software two types of panel unit root tests common unit root processes and individual unit root processes and three types of panel cointegration tests are used to. This module should be installed from within stata by typing ssc install xtwest. I want to check for cointegration using the piece of code below. While we cant possibly list everything, the following list offers a glimpse at. I am doing a englegranger test for cointegration and i am unsure about some commands. Ananou, findit panel cointegration search for panel cointegration manual. Pedroni test data analysis and statistical software stata.
Cointegration analysis of oil prices and consumer price index in south africa using stata software by mphumuzi angelbert sukati abstract this paper investigates the concept of vector autoregression var and cointegration using a bivariate model of global oil prices and headline consumer price index cpi in south africa. If i run pairwise cointegration analysis then i get these resul. Why should we use three panel cointegration test i. In this section we derive the limiting distributions of residualbased cointegration tests using df tests and adf when applied to the model 4 in section 2. Can i use pedroni panel cointegration test when two of the four variables are stationary in levels. One way of making the johansen procedure more robust to nearunitroots may be through a bonferroni type bounds procedure as proposed by cavanagh et al. Engle granger cointegration test using stata and eviews on.
Recent literature has focused on tests of cointegration in a panel setting. Eviews will compute one of the following types of panel cointegration tests. Is there anything to help me run the pedroni tests. Multivariate cointegration analysis johansen test vi. A residual based test for the null hypothesis of cointegration. Which is the best way to test for panel cointegration. A note on power comparison of panel tests of cointegration. Lecture 18 cointegration bauer college of business. It may be downloaded, printed and reproduced only for personal or classroom use. Pedroni 1999, pedroni 2004, kao 1999 and a fishertype test using an underlying johansen methodology maddala and wu 1999. If the h0 unit root cannot be rejected, then the next step is to test cointegration among the components, i. Stata module to perform pedronis panel cointegration tests and panel. Residualbased tests and a cointegration rank test in the system of health care expenditure and gdp are used to test cointegration. A residualbased test of the null of cointegration against.
Users of any of the software, ideas, data, or other materials published in. Engle granger cointegration test using stata and eviews. Criticalvalues for cointegration tests in heterogeneous panels with multiple regressors peter pedroni i. Pedroni 1999, 2004 introduced seven test statistics that test the null hypothesis of no. Residualsbased tests for cointegration with gls detrended data. Stata module to perform pedronis panel cointegration.
This article and the associated program, xtpedroni, introduce two tools that were developed in pedroni 1999, 2001, 2004 for use in stata. I then perform a test for cointegration using the engle and granger 1987 method. Residualbased tests for cointegration in models with. First, it allows stata users to compute pedronis obes 1999, restat 2001 seven test statistics under a null of no cointegration in a heterogeneous panel medium to large n, large t with one or more nonstationary regressors. I calculated those test with eviews 6, but the results i think are erroneous. Stata programs of interest either to a wide spectrum of users e. The pedroni panel cointegration statistic is constructed from the residuals of the spurious regression, pedroni makes a total of eleven statistics with varying degree of properties size and power for different n and t. Johansen test for cointegrating time series analysis in r. Do i have to perform a adf test 1st on x and y to find if both are stationary in their 1st difference i. If we consider an mvector time series z t with a deterministic trend.
Residualsbased tests for cointegration with gls detrended. This precludes placing electronic copies of the stata journal, in whole or in part, on publicly accessible web sites. Use that for the unit root test if you have panel data. Cointegration and the ecm two nonstationary time series are cointegrated if they tend to move together through time. If its found that both have unit root, run the cointegration test. Residualbased tests for cointegration in models with regime shifts with allan gregory journal of econometrics 1996 the to this article is held by the the journal of econometrics. Now that weve outlined the theory of the test we are going to apply it using the r statistical environment. A residualbased cointegration test for near unit root. The residualbased test for the null hypothesis of cointegration can be extended to general models that allow for the presence of a deterministic trend. Furthermore, the long run vector is in line with the life cycle permanent income hypothesis.
The first task is to import the urca library itself. Serial correlation, stationarity and cointegration testing. The westerlundpersyl test or the unit root test on the residuals. First, it allows stata users to compute pedronis seven test statistics under a. Introduction in this paper we describe a method for testing the null of no cointegration in dynamic panels with multiple regressors and compute approximate critical values for these tests. Stata module for testing for cointegration in heterogeneous panels, statistical software components s456941, boston college department of economics, revised 29 jun 2010. Can i use pedroni panel cointegration test when two of. Pedroni test xtcointtest pedroni depvarvarlist if in, pedroni options. Phillips and sam ouliaris 1990 show that residualbased unit root tests applied to the estimated cointegrating residuals do not have the usual dickeyfuller distributions under the null hypothesis of nocointegration. We will also cover how to use the dickeyfuller and phillipsperron tests for stationarity, and also test a time series for cointegration using the englegranger method. These exercises provide a good first step toward understanding cointegrated processes.
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