Westerlund: Panel Cointegration Testing in R

Westerlund is an R package implementing a functional approximation of the four panel cointegration tests developed by Westerlund (2007). The Westerlund test evaluates the null hypothesis of no cointegration by testing whether the error-correction term in a conditional panel ECM is equal to zero. If the null is rejected, there is evidence of a long-run equilibrium relationship between the variables.

Key Features

The package replicates the logic of the Westerlund (2007) methodology, including: * Four Test Statistics: Computes \(G_t\), \(G_a\), \(P_t\), and \(P_a\). * Flexible Dynamics: Allows for unit-specific lag and lead lengths. * Automated Selection: Built-in AIC selection logic for optimal lag and lead lengths. * Bootstrap Procedure: Robust p-values to handle cross-sectional dependence. * Kernel Estimation: Bartlett kernel long-run variance estimation. * Gap Handling: Strict time-series continuity checks to ensure valid econometric results.

Installation

You can install the development version of Westerlund from GitHub using the devtools package:

# Install devtools if you haven't already
# install.packages("devtools")

# Install Westerlund
devtools::install_github("bosco-hung/Westerlund/R", build_vignettes = TRUE)

## Qucik Start
```r
library(Westerlund)

# Ensure data is sorted by ID and Time
results <- westerlund_test(
  data = my_data,
  yvar = "ln_gdp",
  xvars = c("ln_energy", "ln_capital"),
  idvar = "country",
  timevar = "year",
  constant = TRUE,
  trend = FALSE,
  lags = c(1, 3),      # AIC search between 1 and 3 lags
  leads = c(0, 2),     # AIC search between 0 and 2 leads
  bootstrap = 100,     # Run 100 bootstrap replications
  lrwindow = 3         # Bartlett kernel window size
)

# View the results table
print(results)

References

Westerlund, J. (2007). Testing for Error Correction in Panel Data. Oxford Bulletin of Economics and Statistics, 69(6), 709-748.

Persyn, D., & Westerlund, J. (2008). Error-Correction-Based Cointegration Tests for Panel Data. Stata Journal, 8(2), 232-241.