On Theil's Errors
CentER Working Paper No. 2003-18
Posted: 26 May 2004
Date Written: 2003
We take a fresh look at Theil's BLUS residuals and ask why they have gone out of fashion. All our simulation experiments indicate that tests based on BLUS residuals have higher power than those based on the more popular recursive residuals, even in those cases (structural breaks) where intuition would favour the recursive residuals.
Keywords: BLUS residuals, Recursive residuals, Power comparisons
JEL Classification: B23, C10, C13, C20
Suggested Citation: Suggested Citation