The Faculty of Business and Management (FBM) at UIC hosted a distinguished lecture titled "Panel Cointegration Bounds Testing with Common Factors", featuring Professor Anindya Banerjee, Head of the Department of Economics at the University of Birmingham. This event took place on Thursday, December 13, 2024, at the UIC campus.

Prof. Anindya Banerjee joined the University of Birmingham as a Professor of Economics in January 2008. Prior to that, he was a Professor at the European University Institute in Florence and a Fellow at Wadham College, Oxford. He earned his Ph.D. from the University of Oxford. His research interests include time series econometrics, particularly factor models, and the econometrics of integrated panel data.

In his presentation, Prof. Banerjee referred to the foundational paper by Pesaran, Shin, and Smith (2001) published in the Journal of Applied Econometrics, titled "Bounds Testing Approaches to the Analysis of Level Relationships". This work revolutionized the approach to testing for cointegration in time series data. Prof. Banerjee emphasized the practical implications and theoretical underpinnings of panel cointegration bounds testing with common factors.

The seminar focused on applying a panel data version of bounds testing to the panel cointegration test, considering cross-sectional dependence driven by unobserved common factors. Following the ideas of Pesaran et al. (2001), Profe. Banerjee examined the advantages and disadvantages of a bounds-based procedure. While this approach allows researchers to remain agnostic about the time series properties of the variables in the model, it can lead to significant ambiguity when testing for cointegration. This often results in substantial under-rejection of the null hypothesis, which posits no cointegration.

Prof. Banerjee explored the most suitable methodological approaches for testing unit roots and cointegration in panels with cross-sectional dependence. He discussed the theoretical analysis with extensive simulation results, questioning whether it is prudent to work within an agnostic framework, as enabled by common correlated effects estimation, or whether researchers should explicitly investigate the integration properties of the variables, as recommended by Bai and Ng (2010). His expertise and in-depth discussion provided attendees with a comprehensive understanding of how to effectively apply these advanced techniques in their research and analytical work.

During the Q&A session, Professor Banerjee engaged with the audience, making the seminar a unique opportunity for students and faculty to interact with a leading figure in the field and gain deeper insights into advanced econometric techniques.