The Power of Lambda Max
This paper considers 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 "lamda max" test. It is found that neither test uniformly 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 both tests are admissible. Copyright 2001 by Blackwell Publishing Ltd
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Volume (Year): 63 (2001)
Issue (Month): 3 (July)
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