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Testing an autoregressive structure in binary time series models

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  • Henri Nyberg

    (University of Helsinki and HECER)

Abstract

This paper introduces a Lagrange Multiplier (LM) test for testing an autoregressive structure in a binary time series model proposed by Kauppi and Saikkonen (2008). Simulation results indicate that the two versions of the proposed LM test have reasonable size and power properties when the sample size is large. A parametric bootstrap method is suggested to obtain approximately correct sizes also in small samples. The use of the test is illustrated by an application to recession forecasting models using monthly U.S. data.

Suggested Citation

  • Henri Nyberg, 2010. "Testing an autoregressive structure in binary time series models," Economics Bulletin, AccessEcon, vol. 30(2), pages 1460-1473.
    • Handle: RePEc:ebl:ecbull:eb-10-00253
    as

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    References listed on IDEAS

    as
    1. Henri Nyberg, 2010. "Dynamic probit models and financial variables in recession forecasting," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 29(1-2), pages 215-230.
    2. Leung, Mark T. & Daouk, Hazem & Chen, An-Sing, 2000. "Forecasting stock indices: a comparison of classification and level estimation models," International Journal of Forecasting, Elsevier, vol. 16(2), pages 173-190.
    3. Bernard, Henri & Gerlach, Stefan, 1998. "Does the Term Structure Predict Recessions? The International Evidence," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 3(3), pages 195-215, July.
    4. Marcelle Chauvet & Simon Potter, 2005. "Forecasting recessions using the yield curve," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 24(2), pages 77-103.
    5. Marcellino, Massimiliano & Stock, James H. & Watson, Mark W., 2006. "A comparison of direct and iterated multistep AR methods for forecasting macroeconomic time series," Journal of Econometrics, Elsevier, vol. 135(1-2), pages 499-526.
    6. Tina Hviid Rydberg & Neil Shephard, 2003. "Dynamics of Trade-by-Trade Price Movements: Decomposition and Models," Journal of Financial Econometrics, Oxford University Press, vol. 1(1), pages 2-25.
    7. Startz, Richard, 2008. "Binomial Autoregressive Moving Average Models With an Application to U.S. Recessions," Journal of Business & Economic Statistics, American Statistical Association, vol. 26, pages 1-8, January.
    8. Davidson, Russell & MacKinnon, James G., 1984. "Convenient specification tests for logit and probit models," Journal of Econometrics, Elsevier, vol. 25(3), pages 241-262, July.
    9. Heikki Kauppi, 2008. "Yield-Curve Based Probit Models for Forecasting U.S. Recessions: Stability and Dynamics," Discussion Papers 31, Aboa Centre for Economics.
    10. Estrella, Arturo, 1998. "A New Measure of Fit for Equations with Dichotomous Dependent Variables," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(2), pages 198-205, April.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    LM test; Binary response; Dynamic probit model; Parametric bootstrap; Recession forecasting;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables

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