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Abstract
We propose new tests for cointegration based on signs of the residuals of the conventional t-test. Our tests have the limiting normal distribution under the null hypothesis and are robust to heavy tailed disturbances. A Monte-Carlo simulation shows the new tests have a stable size property and are locally more powerful than that of Engle and Granger (Citation1987) for heavy tailed error distribution.
Acknowledgements
This work was supported by the SRC/ERC program of MOST/KOSEF (R11-2000-073-00000).
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