THE POWER OF COINTEGRATION TESTS.

The articles examines the asymptotic and finite simple properties of the two procedures for a simple, single-lag bivariate process. It suggests that even with more lags and more variables, the reason for the low power of the Dickey-Fuller test remains. The error-correction-based test is preferable because it uses available information more efficiently than the Dickey-Fuller test. The article describes the process of interest and derives the relationship between the error-correction mechanism and the equation from which the Dickey-Fuller statistic is calculated.