A Bayesian Extension of the J-Test for Non-Nested Hypotheses
It is a common practice to use the Davidson and MacKinnon's J-test in empirical applications to test non-nested model specifications. However, when the alternate specifications fit the data well the J- test may fail to distinguish between the true and false models: the J-test will either reject, or fail to reject both specifications. We show that it is possible to use the information generated by the J-test and combine it with the Bayesian posterior odds approach that would yield an unequivocal and acceptable solution for non-nested hypotheses. We show that the approximations of Schwarz and Bayesian Information Criterion based on classical estimates for the J- test yield the Bayesian posterior odds without any need for the specification of the prior distributions and the onerous Bayesian computations.
Volume (Year): 9 (2011)
Issue (Month): 1 ()
|Contact details of provider:|| Web page: http://www.jqe.co.in/societyhome.html|
More information through EDIRC
|Order Information:|| Postal: Managing Editor, Journal of Quantitative Economics, Indira Gandhi Institute of Development Research (IGIDR), Gen. A.K. Vaidya Marg, Goregaon (E), Mumbai 400 065 , INDIA|
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.:
- Bernanke, Ben & Bohn, Henning & Reiss, Peter C., 1988.
"Alternative non-nested specification tests of time-series investment models,"
Journal of Econometrics,
Elsevier, vol. 37(3), pages 293-326, March.
- Ben S. Bernanke & Henning Bohn & Peter C. Reiss, 1985. "Alternative Nonnested Specification Tests of Time Series Investment Models," NBER Technical Working Papers 0049, National Bureau of Economic Research, Inc.
- Godfrey, L. G. & Pesaran, M. H., 1983. "Tests of non-nested regression models: Small sample adjustments and Monte Carlo evidence," Journal of Econometrics, Elsevier, vol. 21(1), pages 133-154, January.
- Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119, March.
- McAleer, Michael, 1995. "The significance of testing empirical non-nested models," Journal of Econometrics, Elsevier, vol. 67(1), pages 149-171, May.
- Michael C. Lovell, 1963. "Seasonal Adjustment of Economic Time Series and Multiple Regression," Cowles Foundation Discussion Papers 151, Cowles Foundation for Research in Economics, Yale University.
- Pesaran, M. H. & Weeks, M., 1999. "Non-nested Hypothesis Testing: An Overview," Cambridge Working Papers in Economics 9918, Faculty of Economics, University of Cambridge.
When requesting a correction, please mention this item's handle: RePEc:jqe:jqenew:v:9:y:2011:i:1:p:53-72. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (D. M. Nachane)or ()
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.