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.
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Paper provided by Queen's University, Department of Economics in its series Working Papers with number
922.