The sensitivity of nonparametric misspecification tests to disturbance autocorrelation
We show that some nonparametric specification tests can be robust to disturbance autocorrelation. This robustness can be affected by the specification of the true model and by the sample size. Once applied to the prediction of changes in the Euro Repo rate by means of an index based on ECB wording, we find that the least sensitive nonparametric tests can have a comparable performance to a RESET test with robust standard errors.
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