A note on the power of panel cointegration tests – An application to health care expenditure and gdp

Giorgia Marini

No 21, Public Finance Research Papers from Istituto di Economia e Finanza, DSGE, Sapienza University of Rome

Abstract: This paper enlarges on Gutierrez's (2003) results on the power of panel cointegration tests. By a comparison of power of panel cointegration tests, we show how the choice of most powerful test depends on the values of the sample statistics. Country-by-country and panel stationarity and cointegration tests are performed on a panel of 20 OECD countries over the period 1971-2004. Residual-based tests and a cointegration rank test in the system of health care expenditure and GDP are used to test cointegration. Asymptotic normal distribution of these tests allows a straightforward comparison: for some values of the sample statistics, residual-based and rank tests are not directly comparable as the power of the residual-based tests oscillates; for other values of the sample statistics, the rank test is more powerful than the residual-based tests. This suggests that a clear-cut conclusion on the most powerful test cannot be reached a priori.

Keywords: Panel data; panel stationarity tests; panel cointegration tests; power of tests (search for similar items in EconPapers)
JEL-codes: C12 C22 C23 I10 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2016-05
New Economics Papers: this item is included in nep-ecm and nep-ets
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Persistent link: https://EconPapers.repec.org/RePEc:gfe:pfrp00:00021

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