Reducing the size distortions of the panel LM Test for cointegration

This paper proposes a simple procedure to reduce the size distortions of the panel LM test for cointegration. The new procedure is based on first splitting the sample into even and odd numbered observations, and to employ the panel LM test to each subsample. The two tests are then combined using the Bonferroni principle as suggested by Choi [Choi, I., 2004, Improving the empirical size of the KPSS Test of stationarity, unpublished manuscript, Department of Economics, Hong Kong University of Science and Technology]. The Monte Carlo evidence suggests that this procedure can lead to substantial reduction in size distortions when the equilibrium errors are autoregressive.