Mixed signals among tests for panel cointegration

In this paper, we study the effect that different serial correlation adjustment methods can have on panel cointegration testing. As an example, we consider the very popular tests developed by Pedroni [Pedroni, P. (1999). Critical values for cointegration tests in heterogeneous panels with multiple regressors. Oxford Bulletin of Economics and Statistics 61, 653670., Pedroni, P. (2004). Panel cointegration: asymptotic and finite sample properties of pooled time series tests with an application to the PPP hypothesis. Econometric Theory 20, 597-625.]. Results based on both simulated and real data suggest that different adjustment methods can lead to significant variations in test outcome, and thus also in the conclusions.