A principal components analysis of common stochastic trends in heterogeneous panel data: Some Monte Carlo evidence

Authors
Hall, S Lazarova, S Urga, G
Citation
S. Hall et al., A principal components analysis of common stochastic trends in heterogeneous panel data: Some Monte Carlo evidence, OX B ECON S, 61, 1999, pp. 749
Citations number
16
Categorie Soggetti
Economics
Journal title
OXFORD BULLETIN OF ECONOMICS AND STATISTICS
ISSN journal
03059049 → ACNP
Volume
61
Year of publication
1999
Database
ISI
SICI code
0305-9049(199911)61:<749:APCAOC>2.0.ZU;2-0
Abstract
In this paper we propose a new approach based on principal components analy sis to test for the number of common stochastic trends driving the nonstati onary series in a panel data set. This test has the advantage that it is al so consistent when there is a mixture of I(0) and I(1) series, making it un necessary to pre-test the panel for unit root. Furthermore, the test solves the problem of dimensionality encountered in large panel data sets.