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A Panel Bounds Testing Procedure

¹ Centre of Planning and Economic Research, Athens, Greece
² Gulf One Lab for Computational & Economic Research, Lancaster University, Lancaster, UK
³ Department of Economics, School of Economic Sciences, Athens University of Economics and Business, Athens, Greece
⁴ Department of Economics, Lancaster University Management School, Lancaster, UK

Theoretical Economics Letters·Volume 13 (2023)·Pages 1765–1779·Published 26 December 2023·DOI10.4236/tel.2023.137102

Abstract

We propose a bounds testing procedure (BTP) with a battery of tests for the existence of a non-degenerate co-integrating relationship in levels, for long panels. It is a natural extension to panel data of the respective approach in time series by Pesaran, Shin, and Smith (2001) and extended by Bertsatos, Sakellaris, and Tsionas (2022) . Simulations suggest that standard inference is not valid for at least one of the tests in our proposed panel BTP. A computer code that generates sample-specific critical values is provided. We demon strate the proposed BTP by applying alternative model specifications for systemic banks’ market value of equity and extending Rhodes-Kropf, Robinson, and Viswanathan (2005) .

KeywordsBanksBounds Testing ProcedureCo-IntegrationFixed Effects

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A Panel Bounds Testing Procedure

Abstract

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