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The Inappropriate Use of Serial Correlation Tests in Dynamic Linear Models

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  • Dezhbakhsh, Hashem

Abstract

A survey of several economic journals reveals that very often the Durbin-Watson and the portmanteau (Box-Pierce or Ljung-Box) tests are inappropriately applied to linear models with lagged dependent variables and exogenous regressors. Sampling experiments indicate that the Durbin-Watson performs poorly in models with more than one lag of the dependent variable, a situation commonly considered in the literature. The experiments also indicate that the portmanteau test is inadequate when applied to dynamic linear models with exogenous regressors. In addition, the performance of Durbin's h and m tests in models commonly used in the literature but not considered by previous studies is evaluated. The results reveal that among the four tests examined, the one which is the least frequently used in practice (the m test) has the best performance. Copyright 1990 by MIT Press.

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Bibliographic Info

Article provided by MIT Press in its journal Review of Economics & Statistics.

Volume (Year): 72 (1990)
Issue (Month): 1 (February)
Pages: 126-32

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Handle: RePEc:tpr:restat:v:72:y:1990:i:1:p:126-32

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Cited by:
  1. Ringlund, Guro Bornes & Rosendahl, Knut Einar & Skjerpen, Terje, 2008. "Does oilrig activity react to oil price changes An empirical investigation," Energy Economics, Elsevier, vol. 30(2), pages 371-396, March.
  2. Robert S. Chirinko & Christopher Curran, 2013. "Greenspan Shrugs: Central Bank Communication, Formal Pronouncements and Bond Market Volatility," CESifo Working Paper Series 4236, CESifo Group Munich.
  3. Godfrey, L.G. & Tremayne, A.R., 2005. "The wild bootstrap and heteroskedasticity-robust tests for serial correlation in dynamic regression models," Computational Statistics & Data Analysis, Elsevier, vol. 49(2), pages 377-395, April.
  4. Godfrey, Leslie G., 1998. "Hausman tests for autocorrelation in the presence of lagged dependent variables Some further results," Journal of Econometrics, Elsevier, vol. 82(2), pages 197-207, February.
  5. Andrea Vaona & Guido Ascari, 2010. "Regional Inflation Persistence: Evidence from Italy," Working Papers 04/2010, University of Verona, Department of Economics.
  6. Andrea Vaona, 2008. "Inflation persistence, structural breaks and omitted variables: a critical view," Quaderni della facoltà di Scienze economiche dell'Università di Lugano 0802, USI Università della Svizzera italiana.
  7. Jean-Marie Dufour & Lynda Khalaf & Marcel Voia, 2013. "Finite-sample resampling-based combined hypothesis tests, with applications to serial correlation and predictability," CIRANO Working Papers 2013s-40, CIRANO.
  8. Godfrey, L.G., 2007. "Alternative approaches to implementing Lagrange multiplier tests for serial correlation in dynamic regression models," Computational Statistics & Data Analysis, Elsevier, vol. 51(7), pages 3282-3295, April.
  9. Beck, Martin & Winker, Peter, 2004. "Modeling spillovers and feedback of international trade in a disequilibrium framework," Economic Modelling, Elsevier, vol. 21(3), pages 445-470, May.
  10. Darrat, Ali F. & Al-Mutawa, Ahmed, 1996. "Modelling money demand in the United Arab Emirates," The Quarterly Review of Economics and Finance, Elsevier, vol. 36(1), pages 65-87.

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