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Distribution-free specification tests for dynamic linear models

Delgado, Miguel A., Hidalgo, Javier and Velasco, Carlos (2009) Distribution-free specification tests for dynamic linear models. Econometrics Journal, 12 (s1). S105-S134. ISSN 1368-423X

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Abstract

This article proposes goodness-of-fit tests for dynamic regression models, where regressors are allowed to be only weakly exogenous and arbitrarily correlated with past shocks. The null hypothesis is stated in terms of the lack of serial correlation of the errors of the model. The tests are based on a linear transformation of a Bartlett's Tp-process of the residuals. This transformation approximates the martingale component of the process so that it converges weakly to the standard Brownian motion under the null hypothesis. One feature of our setup is that we do not require to specify the dynamic structure of the regressors. Due to this, the transformation employs a semi-parametric correction that does not restrict the class of local alternatives that our tests can detect, in contrast with other works using smoothing techniques. A Monte Carlo study illustrates the finite sample performance of the tests.

Item Type: Article
Official URL: http://onlinelibrary.wiley.com/journal/10.1111/(IS...
Additional Information: © 2009 Wiley-Blackwell
Library of Congress subject classification: H Social Sciences > HB Economic Theory
Sets: Departments > Economics
Collections > Economists Online
Research centres and groups > Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 05 Apr 2011 11:44
URL: http://eprints.lse.ac.uk/30439/

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