TY  - JOUR
AU  - Mark,Nelson C.
AU  - Sul,Donggyu
TI  - Cointegration Vector Estimation by Panel DOLS and Long-Run Money Demand
JF  - National Bureau of Economic Research Technical Working Paper Series
VL  - No. 287
PY  - 2002
Y2  - December 2002
UR  - http://www.nber.org/papers/t0287
L1  - http://www.nber.org/papers/t0287.pdf
N1  - Author contact info:
Nelson Mark
Department of Economics and Econometrics
University of Notre Dame
Notre Dame, IN  46556
Tel: 574/631-0518
Fax: 574/631-4783
E-Mail: nmark@nd.edu

Donggyu Sul
University of Texas at Dallas
E-Mail: d.sul@utdallas.edu
AB  - 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).
ER  -