The power of cointegration tests

Juan Dolado, Neil Ericsson and Jeroen J. M. Kremers

No 431, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: A cointegration test statistic based upon estimation of an error correction model can be approximately normally distributed when no cointegration is present. By contrast, the equivalent Dickey-Fuller statistic applied to residuals from a static relationship has a non-standard asymptotic distribution. When cointegration exists, the error-correction test generally is more powerful than the Dickey-Fuller test. These differences arise because the latter imposes a possibly invalid common factor restriction. The issue is general and has ramifications for system-based cointegration tests. Monte Carlo analysis and an empirical study of U.K. money demand demonstrate the differences in power.

Keywords: Econometrics (search for similar items in EconPapers)
Date: 1992
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (523)

Downloads: (external link)
http://www.federalreserve.gov/pubs/ifdp/1992/431/default.htm (text/html)
http://www.federalreserve.gov/pubs/ifdp/1992/431/ifdp431.pdf (application/pdf)

Related works:
Journal Article: The Power of Cointegration Tests (1992)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:431

Access Statistics for this paper

More papers in International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().