dcce (version 0.4.2)

panel_coint_test: Pedroni and Kao Panel Cointegration Tests

Description

Implements simplified versions of the Pedroni (1999, 2004) and Kao (1999) residual-based panel cointegration tests.

Usage

panel_coint_test(
  data,
  unit_index,
  time_index,
  formula,
  test = c("pedroni", "kao"),
  lags = 1L
)

Value

An object of class dcce_cointegration_extra with elements test, statistics (a tibble), N, T_bar, lags.

Arguments

data

A panel data.frame.

unit_index

Character: unit identifier column.

time_index

Character: time identifier column.

formula

Two-sided formula in levels: y ~ x1 + x2.

test

Character: "pedroni" or "kao".

lags

Integer: ADF lag order for the residual regression. Default 1.

Details

Pedroni: Fits unit-level OLS regressions of \(y\) on \(x_1, \ldots, x_K\), extracts the residuals, runs an ADF regression on each unit's residual series, and averages the t-statistics. Reports the group-mean t-statistic (group_t) and the group-mean rho-statistic (group_rho).

Kao: Similar but pools the residuals rather than averaging unit-level statistics. Reports a single ADF t-statistic on the demeaned pooled residuals.

Both tests have null hypothesis no cointegration. A large negative statistic rejects the null.

References

Pedroni, P. (1999). Critical values for cointegration tests in heterogeneous panels with multiple regressors. Oxford Bulletin of Economics and Statistics, 61(S1), 653--670.

Pedroni, P. (2004). Panel cointegration: asymptotic and finite sample properties of pooled time series tests with an application to the PPP hypothesis. Econometric Theory, 20(3), 597--625.

Kao, C. (1999). Spurious regression and residual-based tests for cointegration in panel data. Journal of Econometrics, 90(1), 1--44.

Examples

data(pwt8)
panel_coint_test(
  data = pwt8, unit_index = "country", time_index = "year",
  formula = log_rgdpo ~ log_hc + log_ck,
  test = "pedroni", lags = 1
)