Mathematics (Apr 2024)

A Generalized Residual-Based Test for Fractional Cointegration in Panel Data with Fixed Effects

  • Saidat Fehintola Olaniran,
  • Oyebayo Ridwan Olaniran,
  • Jeza Allohibi,
  • Abdulmajeed Atiah Alharbi,
  • Mohd Tahir Ismail

DOI
https://doi.org/10.3390/math12081172
Journal volume & issue
Vol. 12, no. 8
p. 1172

Abstract

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Asymptotic theories for fractional cointegrations have been extensively studied in the context of time series data, with numerous empirical studies and tests having been developed. However, most previously developed testing procedures for fractional cointegration are primarily designed for time series data. This paper proposes a generalized residual-based test for fractionally cointegrated panels with fixed effects. The test’s development is based on a bivariate panel series with the regressor assumed to be fixed across cross-sectional units. The proposed test procedure accommodates any integration order between [0,1], and it is asymptotically normal under the null hypothesis. Monte Carlo experiments demonstrate that the test exhibits better size and power compared to a similar residual-based test across varying sample sizes.

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