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Abstract This paper develops a very simple test for the null hypothesis of no cointegration in panel data. The test is general enough to allow for heteroskedastic and serially correlated errors, unit‐specific time trends, cross‐sectional dependence and unknown structural breaks in both the intercept and slope of the cointegrated regression, which may be located at different dates for different units. The limiting distribution of the test is derived, and is found to be normal and free of nuisance parameters under the null. A small simulation study is also conducted to investigate the small‐sample properties of the test. In our empirical application, we provide new evidence concerning the purchasing power parity hypothesis.
Westerlund et al. (Thu,) studied this question.