@techreport{NBERt0287,
title = "Cointegration Vector Estimation by Panel DOLS and Long-Run Money Demand",
author = "Nelson C. Mark and Donggyu Sul",
institution = "National Bureau of Economic Research",
type = "Working Paper",
series = "Technical Working Paper Series",
number = "287",
year = "2002",
month = "December",
doi = {10.3386/t0287},
URL = "http://www.nber.org/papers/t0287",
abstract = {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).},
}