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Saikkonen, Pentti
Lütkepohl, Helmut
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SFB 373 Discussion Paper No. 1998,51
Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes, Berlin
Testing the cointegrating rank of a vector autoregressive process with an intercept is considered. In addition to the likelihood ratio (LR) tests developed by Johansen and Juselius and others we also consider an alternative class of tests which is based on estimating the trend parameters of the deterministic term in a different way. The asymptotic local power of these tests is derived and compared to that of the corresponding LR tests. The small sample properties are investigated by simulations. The new tests are seen to be substantially more powerful than conventional LR tests.
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Working Paper

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