The power of lambda max
AbstractThis paper condiders likelihood ratio (LR) cointegration rank tests in vector autoregressive models (VAR); the local power of the most widely used LR 'trace' test is compared with the LR 'lambda max' test. It is found that neither test uniformily dominates the other one. Moreover it is shown that the asymptotic properties of the estimator of the cointegration rank based on the trace test are shared by a similar estimator based on the lambda max test. These results indicate that the both tests are admissible.
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Bibliographic InfoPaper provided by Department of Economics, University of Insubria in its series Economics and Quantitative Methods with number qf0004.
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Cointegration; Likelihood Ratio; Unit roots; Local Power;
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