Cointegration Vector Estimation by Panel DOLS and Long-Run Money Demand / Nelson C. Mark, Donggyu Sul.

Format:

Book

Author/Creator:

Mark, Nelson C.

Contributor:

National Bureau of Economic Research.

Sul, Donggyu.

Series:

Technical Working Paper Series (National Bureau of Economic Research) no. t0287.

NBER technical working paper series no. t0287

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2002.

Summary:

We study the panel DOLS estimator of a homogeneous cointegration vector for a balanced panel of N individuals observed over T time periods. Allowable heterogeneity across individuals include individual-specific time trends, individual-specific fixed effects and time-specific effects. The estimator is fully parametric, computationally convenient, and more precise than the single equation estimator. For fixed N as T approaches infinity, the estimator converges to a function of Brownian motions and the Wald statistic for testing a set of linear constraints has a limiting chi-square distribution. The estimator also has a Gaussian sequential limit distribution that is obtained first by letting T go to infinity then letting N go to infinity. In a series of Monte Carlo experiments, we find that the asymptotic distribution theory provides a reasonably close approximation to the exact finite sample distribution. We use panel dynamic OLS to estimate coefficients of the long-run money demand function from a panel of 19 countries with annual observations that span from 1957 to 1996. The estimated income elasticity is 1.08 (asymptotic s.e.=0.26) and the estimated interest rate semi-elasticity is -0.02 (asymptotic s.e.=0.01).

Notes:

Print version record

December 2002.