The power of the KPSS-test for cointegration when residuals are fractionally integrated
We show that the power of the KPSS-test against integration, as measured by divergence rates of the test statistic under the alternative, remains the same when residuals from an OLS-regression rather than true observations are used. This is in stark contrast to residual based tests of the null of integration in a cointegration setting, where power is drastically reduced when residuals are used.
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