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Testing Moving Average Against Autoregressive Disturbances in the Linear Regression Model

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  • Silvapulle, Paramsothy
  • King, Maxwell L.

Abstract

This paper considers testing for MA(1) against AR(1) disturbances in the linear regression model. Tests investigated include approximate point optimal invariant (POI) tests, an asymptotic test of the second-order residual autocorrelation coefficient and a Lagrange multiplier (LM) test. A Monte Carlo experiment compares their small-sample performances. Of the asymptotic tests, the LM test has the most satisfactory sizes, while its rival has the better overall power. We find the approximate POI tests have superior size and power properties in comparison to the asymptotic tests. An approximate POI test is applied to a random walk model for Australian real interest rates.

Suggested Citation

  • Silvapulle, Paramsothy & King, Maxwell L., "undated". "Testing Moving Average Against Autoregressive Disturbances in the Linear Regression Model," Department of Econometrics and Business Statistics Working Papers 267070, Monash University, Department of Econometrics and Business Statistics.
    • Handle: RePEc:ags:monebs:267070
    DOI: 10.22004/ag.econ.267070
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