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.:
- 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.
- 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.
- Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
- Pesaran, M. H. & Weeks, M., 1999. "Non-nested Hypothesis Testing: An Overview," Cambridge Working Papers in Economics 9918, Faculty of Economics, University of Cambridge.
- 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.
- 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.
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 references are entirely missing, you can add them using this form.