Testing for Exogeneity in Cointegrated Panels

Abstract

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 di¤erent from zero. As is wellknown, in such case the OLS estimator is T -consistent, whereas it is p N T -consistent when there is no endogeneity. Other estimators can be employed, such as the FM-OLS, that are p N T -consistent irrespective of whether exogeneity is present or not. Using the di¤erence between the former and the latter estimator, we construct a test statistic which diverges at a rate p N under the null of endogeneity, whilst it is bounded under the alternative of exogeneity, and employ a randomisation approach to carry out the test. Monte Carlo evidence shows that the test has the correct size and good power.JEL codes: C12, C23.

E-commerce and foreign direct investment: pioneering a new era of trade strategies

“…at addressing complexities arising from heteroskedasticity and autocorrelation. The efficacy of this approach in handling such statistical nuances is well documented in the works of scholars such asPedroni (2001),Christou and Pittis (2002),Trapani (2015),,Kripfganz and Sarafidis (2021),Norkutė et al (2021), andKheifets and Phillips (2023). These studies validate the use of fully modified ordinary least squares as a robust tool for enhancing the accuracy of econometric estimations, especially in scenarios similar to those in our study.…”

Long-run price behaviour in the gasoline market - The role of exogeneity

“…The research philosophy here is for the price of any homogeneous good in an identical market a cointegrating relation developed by Johansen (1995) is required, as arbitrage should remove mispricing in the long run (Cerqueti et al, 2018). This article discusses further the development of weak exogeneity to investigate the in implication of cointegration for policy analysis as this has been reviewed in early literature (Hendry & Juselius, 2001;Hunter & Tabaghdehi, 2013;Kurita, 2018;Moral-Benito & Seven, 2015;Trapani, 2015). Furthermore, Chandra & Tappata (2008) pointed out consumer search is a significant and important factor affecting price dispersion in the gasoline market.…”