Linear Vs. Log-Linear Unit-Root Specification: An Application of Mis-Specification Encompassing

19 Pages Posted: 2 Dec 2008

See all articles by Aris Spanos

Aris Spanos

Virginia Polytechnic Institute & State University - Department of Economics

David F. Hendry

University of Oxford - Department of Economics

J. James Reade

University of Reading, Department of Economics

Date Written: 0000

Abstract

The objective of this paper is to apply the mis-specification (M-S) encompassing perspective to the problem of choosing between linear and log-linear unit-root models. A simple M-S encompassing test, based on an auxiliary regression stemming from the conditional second moment, is proposed and its empirical size and power are investigated using Monte Carlo simulations. It is shown that by focusing on the conditional process the sampling distributions of the relevant statistics are well behaved under both the null and alternative hypotheses. The proposed M-S encompassing test is illustrated using US total disposable income quarterly data.

Suggested Citation

Spanos, Aris and Hendry, David F. and Reade, J. James, Linear Vs. Log-Linear Unit-Root Specification: An Application of Mis-Specification Encompassing (0000). Oxford Bulletin of Economics and Statistics, Vol. 70, Issue s1, pp. 829-847, December 2008. Available at SSRN: https://ssrn.com/abstract=1307314 or http://dx.doi.org/10.1111/j.1468-0084.2008.00532.x

Aris Spanos (Contact Author)

Virginia Polytechnic Institute & State University - Department of Economics ( email )

3021 Pamplin Hall
Blacksburg, VA 24061
United States

David F. Hendry

University of Oxford - Department of Economics ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom
+44 1865 278544 (Phone)
+44 1865 278557 (Fax)

J. James Reade

University of Reading, Department of Economics ( email )

Whiteknights
Reading, Berkshire RG6 6AH
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
4
Abstract Views
480
PlumX Metrics