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A Kernel Test for Neglected Nonlinearity

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Author Info
Ralph Bradley (U.S. Bureau of Labor Statistics)
Robert McClelland (U.S. Bureau of Labor Statistics)
Abstract

This paper develops a new kernel test for neglected nonlinearity in the conditional expectation function, and compares this test to the Ramsey RESET test (1969) and the Neural Net test of Lee, White, and Granger (1993). Like the Neural Test and the Ramsey Reset Test, this Kernel test is a Lagrange Multiplier test based on the R-Square statistic from a regression of the estimated residuals on the regressors, and an additional nonlinear function of the regressors. Unlike the other tests, our test has a two stage approach where in the first stage we estimate the structure of the misspecification and in the second stage we test for whether or not the estimate of the misspecification can better predict the residuals than their mean. This two stage approach can give the researcher guidance on the nature of the misspecification, and should improve the power of the test since the added function in the regression of the residuals is itself an estimate of the conditional expectation of the residuals given the independent variables. In addition, because it uses simple, well known estimation methods it can be implemented by researchers when using linear models.

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Publisher Info
Article provided by Berkeley Electronic Press in its journal Studies in Nonlinear Dynamics & Econometrics.

Volume (Year): 1 (1996)
Issue (Month): 2 ()
Pages: 119-130
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Handle: RePEc:bep:sndecm:1:1996:2:119-130

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Bierens, Herman J, 1990. "A Consistent Conditional Moment Test of Functional Form," Econometrica, Econometric Society, vol. 58(6), pages 1443-58, November. [Downloadable!] (restricted)
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  2. Bierens, Herman J., 1982. "Consistent model specification tests," Journal of Econometrics, Elsevier, vol. 20(1), pages 105-134, October. [Downloadable!] (restricted)
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  1. Tae-Hwy Lee, 2001. "Neural Network Test and Nonparametric Kernel Test for Neglected Nonlinearity in Regression Models," Studies in Nonlinear Dynamics & Econometrics, Berkeley Electronic Press, vol. 4(4), pages 1063-1063. [Downloadable!] (restricted)
  2. W A Razzak, 1998. "Business cycle asymmetries and the nominal exchange rate regimes," Reserve Bank of New Zealand Discussion Paper Series G98/4, Reserve Bank of New Zealand. [Downloadable!]
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