A parametric approach to the estimation of cointegration vectors in panel data



Table 2: Sizes and local powers of tests of the cointegration rank

(a) Empirical sizes

Я =

10

Я =

20

T

REG

LLL

REG

LLL

20

0.012

0.000

0.010

0.000

30

0.033

0.000

0.033

0.000

50

0.053

0.004

0.050

0.002

100

0.056

0.030

0.068

0.033

(b) Local powers (size adjusted)

Я =

10

Я =

20

T

REG

LLL

REG

LLL

20

0.242

0.150

0.240

0.143

30

0.221

0.150

0.227

0.148

50

0.186

0.141

0.206

0.153

100

0.164

0.146

0.169

0.166

Note: Rejection frequency for tests of the null hypothesis r = 1. “REG” indi-
cates the regression based test suggested in Theorem 2 and “LLL” denotes the
LR-bar statistic suggested by Lyhagen et al. (2001). The local power is c
om-
puted by simulating the data under the local alternative
VNT = 10/ (TN).
The critical values are used that yield tests with an exact size of 0.05 under the
null hypothesis (size adjusted power). 5000 replications are used to compute
the rejection frequencies.

23



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