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Consistent and Non-Degenerate Model Specification Tests Against Smooth Transition Alternatives

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Author Info
Jonathan B. Hill () (Department of Economics, Florida International University)

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Abstract

In this paper we develop a test of functional form that is consistent against any deviation from the null specification, and directs power towards a class of nonlinear "smooth transition" functional forms. Of separate interest, we provide new details regarding when and whether consistent parametric tests of functional form are asymptotically degenerate. A test of linear autoregression against smooth transition alternatives is never degenerate. Moreover, a test of Exponential STAR has surprising power and non-degeneracy attributes entirely associated with the choice of threshold. In a simulation experiment in which all parameters are randomly selected the proposed test has power nearly identical to the most powerful tests for true STAR, neural network and SETAR processes, and dominates popular tests. We apply the test to monthly U.S. output, money supply, prices and interest rates.

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File URL: http://www.fiu.edu/orgs/economics/wp2004/04-06.pdf
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File Function: Revised version, 2006
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Publisher Info
Paper provided by Florida International University, Department of Economics in its series Working Papers with number 0406.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 19 pages
Date of creation: Apr 2004
Date of revision:
Handle: RePEc:fiu:wpaper:0406

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Web page: http://www.fiu.edu/orgs/economics/
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Related research
Keywords: smooth transition; consistent test; nondegenerate test; nonlinear; neural networks;

Find related papers by JEL classification:
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics

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References listed on IDEAS
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  15. Donald W.K. Andrews & Werner Ploberger, 1993. "Admissibility of the Likelihood Ratio Test When a Nuisance Parameter Is Present OnlyUnder the Alternative," Cowles Foundation Discussion Papers 1058, Cowles Foundation, Yale University. [Downloadable!]
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