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Analytical Power Comparisons Of Nested And Nonnested Tests For Linear And Loglinear Regression Models

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  • Kobayashi, Masahito
  • McAleer, Michael

Abstract

This paper compares several tests for linear and loglinear regression models where both the dependent and independent variables are transformed. It is shown that the Lagrange multiplier test proposed by Godfrey and Wickens (1981, Review of Economic Studies 48, 487–496) in the framework of the Box–Cox regression model has the highest asymptotic power of the compared tests. The extended projection test of MacKinnon, White, and Davidson (1983, Journal of Econometrics 11, 53–70), the test of Bera and McAleer (1983, paper presented to the SSRC Econometric Study Group Conference on Model Specification and Testing, Warwick; 1989, Sankhya B 51, 212–224), and the test of Andrews (1971, Biometrika 58, 249–254) are shown to have asymptotically equivalent powers and to have lower powers than the nonnested test of Cox (1961, Proceedings of the Fourth Berkeley Symposium on Mathematical Statistics and Probability, Vol. 1, 105–123, Berkeley: University of California Press; 1962, Journal of the Royal Statistical Society B 24, 406–424).

Suggested Citation

  • Kobayashi, Masahito & McAleer, Michael, 1999. "Analytical Power Comparisons Of Nested And Nonnested Tests For Linear And Loglinear Regression Models," Econometric Theory, Cambridge University Press, vol. 15(1), pages 99-113, February.
    • Handle: RePEc:cup:etheor:v:15:y:1999:i:01:p:99-113_15
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    Cited by:

    1. Luigi Ermini & David F. Hendry, 2008. "Log Income vs. Linear Income: An Application of the Encompassing Principle," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(s1), pages 807-827, December.
    2. Katarina Juselius & Niels Framroze Møller & Finn Tarp, 2014. "The Long-Run Impact of Foreign Aid in 36 African Countries: Insights from Multivariate Time Series Analysis," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 76(2), pages 153-184, April.
    3. Galeotti, Marzio & Lanza, Alessandro, 1999. "Richer and cleaner? A study on carbon dioxide emissions in developing countries," Energy Policy, Elsevier, vol. 27(10), pages 565-573, October.
    4. Corradi, Valentina & Swanson, Norman R., 2006. "The effect of data transformation on common cycle, cointegration, and unit root tests: Monte Carlo results and a simple test," Journal of Econometrics, Elsevier, vol. 132(1), pages 195-229, May.
    5. Godfrey, L.G. & Santos Silva, J.M.C., 2007. "A note on variable addition tests for linear and log-linear models," Economics Letters, Elsevier, vol. 95(3), pages 422-427, June.

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