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The effect of the GARCH(1, 1) on autocorrelation tests in dynamic systems of equations

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  • Panagiotis Mantalos
  • Ghazi Shukur

Abstract

Using Monte Carlo methods, the properties of systemwise generalizations of the Breusch-Godfrey test for autocorrelated errors are studied when there are some kinds of GARCH effects among the errors. The analysis, regarding the size of the test, reveals that the GARCH have considerable effects of the properties of the test regarding the size, especially in large systems of equations. The corrected LR tests, however, have been shown to perform satisfactorily in small systems when the errors are white noise or they have low GARCH effects, whilst the commonly used TR2 test behaves badly even in single equations. All tests perform badly, however, when the number of equations increases and the GARCH effect is strong. As regards the power of the test, the GARCH was not found to have any significant effects on the power properties of the test.

Suggested Citation

  • Panagiotis Mantalos & Ghazi Shukur, 2005. "The effect of the GARCH(1, 1) on autocorrelation tests in dynamic systems of equations," Applied Economics, Taylor & Francis Journals, vol. 37(16), pages 1907-1913.
    • Handle: RePEc:taf:applec:v:37:y:2005:i:16:p:1907-1913
    DOI: 10.1080/00036840500118804
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    References listed on IDEAS

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    1. Breusch, T S, 1978. "Testing for Autocorrelation in Dynamic Linear Models," Australian Economic Papers, Wiley Blackwell, vol. 17(31), pages 334-355, December.
    2. Godfrey, Leslie G, 1978. "Testing for Higher Order Serial Correlation in Regression Equations When the Regressors Include Lagged Dependent Variables," Econometrica, Econometric Society, vol. 46(6), pages 1303-1310, November.
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    Cited by:

    1. Joo-Yeon Hyun & Hyeong Ho Mun & Tae-Hwan Kim & Jinook Jeong, 2010. "The effect of a variance shift on the Breusch-Godfrey's LM test," Applied Economics Letters, Taylor & Francis Journals, vol. 17(4), pages 399-404.

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