Panel ARDL is not possible due to short T. Usually, Panel ARDL is used if T > N, and Panel GMM is used if N > T. How we can test panel cointegration in above case?
Hi Muhammad;
In principle, do not use cointegration tests in the GMM method for Panel data.
The problem here is N>T. The only way I can think of is to impose strict constraints on model parameters, e.g. b(1) =b(2)=b(3); s(1)=s(2), etc. fewer time series parameters to estimate, less T is required. But I'm not confident how well this would work in practice. May depend on N, T, and characteristics of the data.
Truly, given a mixed unit root for the variables of I(0) and I(1), then, the appropriate panel cointegration according to Pesaran is Autoregressive Distributed Lags (ARDL). Further, ARDL is appropriate use when T>N and can also be use when both N and T are large. However, neither ARDL nor other panel cointegration estimators such as dynamic OLS (DOLS) and fully modified OLS (FMOLS) is applicable when N>T because of the degree of freedom insufficient, except both T and N are large sample sizes.
Lastly, we can test a panel cointegration if both T and N are large sample sizes.
Panel ARDL can be applied when NT, imposing restrictions on parameters might work but as Mr. Lawrence Raffalovich said, the efficiency of estimators would be questionable.
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