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A note on the power of panel cointegration tests – An application to health care expenditure and gdp

Author

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  • Giorgia Marini

    (Università Sapienza di Roma - Dipartimento di Studi Giuridici, Filosofici ed Economici)

Abstract

This paper enlarges on Gutierrez's (2003) results on the power of panel cointegration tests. By a comparison of power of panel cointegration tests, we show how the choice of most powerful test depends on the values of the sample statistics. Country-by-country and panel stationarity and cointegration tests are performed on a panel of 20 OECD countries over the period 1971-2004. Residual-based tests and a cointegration rank test in the system of health care expenditure and GDP are used to test cointegration. Asymptotic normal distribution of these tests allows a straightforward comparison: for some values of the sample statistics, residual-based and rank tests are not directly comparable as the power of the residual-based tests oscillates; for other values of the sample statistics, the rank test is more powerful than the residual-based tests. This suggests that a clear-cut conclusion on the most powerful test cannot be reached a priori.

Suggested Citation

  • Giorgia Marini, 2016. "A note on the power of panel cointegration tests – An application to health care expenditure and gdp," Public Finance Research Papers 21, Istituto di Economia e Finanza, DSGE, Sapienza University of Rome.
    • Handle: RePEc:gfe:pfrp00:00021
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    File URL: https://www.dsge.uniroma1.it/sites/default/files/pubblicazioni/economia/e-pfrp21.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Panel data; panel stationarity tests; panel cointegration tests; power of tests;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • I10 - Health, Education, and Welfare - - Health - - - General

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