Testing for Exogeneity in Cointegrated Panels

• Autores: Lorenzo Trapani
• Localización: Oxford bulletin of economics and statistics, ISSN 0305-9049, Vol. 77, Nº. 4, 2015, págs. 475-494
• Idioma: inglés
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• Resumen

  • This paper proposes a test for the null that, in a cointegrated panel, the long-run correlation between the regressors and the error term is different from zero. As is well known, in such case the OLS estimator is T-consistent, whereas it is math formula-consistent when there is no endogeneity. Other estimators can be employed, such as the FM-OLS, that are math formula-consistent irrespective of whether exogeneity is present or not. Using the difference between the former and the latter estimator, we construct a test statistic which diverges at a rate math formula under the null of endogeneity, whilst it is bounded under the alternative of exogeneity, and employ a randomization approach to carry out the test. Monte Carlo evidence shows that the test has the correct size and good power.