On the Power of Cointegration Tests: Dimension Invariance vs. Common Factors

Anindya Banerjee, Juan Dolado and Ricardo Mestre

No 922, Working Paper from Economics Department, Queen's University

Abstract: This paper considers the trade-off, for cointegration tests, between dimension and power: that is, we compare the power performance of test-statistics which are dimension-invariant but impose common-factor restrictions with tests which are not dimension free but do not impose those restrictions. As a by-product of the analysis, we consider cases where the t-ratio form of the tests have better power properties than the coefficient form, in spite of the latter diverging at rate O (T) and the former at O (T ), under the alternative hypothesis of cointegration.

Pages: 46 pages
Date: 1995-03
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:922

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