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 .
A note on the power of panel conitegration tests - An application to health care expenditure and GDP / Marini, Giorgia. - ELETTRONICO. - (2016), pp. 1-15. - PUBLIC FINANCE RESEARCH PAPERS.
A note on the power of panel conitegration tests - An application to health care expenditure and GDP
MARINI, GIORGIA
2016
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 .File | Dimensione | Formato | |
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