Distribution-Free Specification Tests for Dynamic Linear Models

30 Pages Posted: 4 Jul 2009

See all articles by Miguel Delgado

Miguel Delgado

affiliation not provided to SSRN

Javier S. Hidalgo

London School of Economics & Political Science (LSE)

Carlos Velasco

Universidad Carlos III de Madrid - Department of Economics

Date Written: 2008-12

Abstract

pTThis 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 -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.

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Suggested Citation

Delgado, Miguel and Hidalgo, Javier S. and Velasco, Carlos, Distribution-Free Specification Tests for Dynamic Linear Models (2008-12). Econometrics Journal, Vol. 12, Issue s1, pp. S105-S134, January 2009. Available at SSRN: https://ssrn.com/abstract=1429075 or http://dx.doi.org/10.1111/j.1368-423X.2009.00280.x

Miguel Delgado (Contact Author)

affiliation not provided to SSRN ( email )

Javier S. Hidalgo

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Carlos Velasco

Universidad Carlos III de Madrid - Department of Economics ( email )

Calle Madrid 126
Getafe, 28903
Spain
+34-91 6249646 (Phone)
+34-91 6249875 (Fax)

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