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Testing Hildreth-Houck Against Return to Normalcy Random Regression Coefficients

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  • Brooks, Robert D.
  • King Maxwell L.

Abstract

In the context of the linear regression model, this paper considers testing for a single Hildreth-Houck random coefficient against the alternative that the coefficient follows the return to normalcy model. We attempt to construct a point-optimal invariant test but find that we have to resort to the class of approximate point-optimal invariant (APOI) tests introduced by King (1987). Empirical power calculations show that these tests have good small-sample properties compared to the likelihood ratio and Wald tests. A particular APOI test is recommended and is found to be remarkably robust to nonnormality.

Suggested Citation

  • Brooks, Robert D. & King Maxwell L., "undated". "Testing Hildreth-Houck Against Return to Normalcy Random Regression Coefficients," Department of Econometrics and Business Statistics Working Papers 267425, Monash University, Department of Econometrics and Business Statistics.
    • Handle: RePEc:ags:monebs:267425
    DOI: 10.22004/ag.econ.267425
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