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A New Procedure For Multiple Testing Of Econometric Models

Listed author(s):
  • Maxwell L. King


  • Xibin Zhang


  • Muhammad Akram

A significant role for hypothesis testing in econometrics involves diagnostic checking. When checking the adequacy of a chosen model, researchers typically employ a range of diagnostic tests, each of which is designed to detect a particular form of model inadequacy. A major problem is how best to control the overall probability of rejecting the model when it is true and multiple test statistics are used. This paper presents a new multiple testing procedure, which involves checking whether the calculated values of the diagnostic statistics are consistent with the postulated model being true. This is done through a combination of bootstrapping to obtain a multivariate kernel density estimator of the joint density of the test statistics under the null hypothesis and Monte Carlo simulations to obtain a p value using this kernel density. We prove that under some regularity conditions, the estimated p value of our test procedure is a consistent estimate of the true p value. The proposed testing procedure is applied to tests for autocorrelation in an observed time series, for normality, and for model misspecification through the information matrix. We find that our testing procedure has correct or nearly correct sizes and good powers, particular for more complicated testing problems. We believe it is the first good method for calculating the overall p value for a vector of test statistics based on simulation.

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Paper provided by Monash University, Department of Econometrics and Business Statistics in its series Monash Econometrics and Business Statistics Working Papers with number 7/11.

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Length: 38 pages
Date of creation: 25 May 2011
Handle: RePEc:msh:ebswps:2011-7
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  1. Zhang, Xibin & King, Maxwell L. & Hyndman, Rob J., 2006. "A Bayesian approach to bandwidth selection for multivariate kernel density estimation," Computational Statistics & Data Analysis, Elsevier, vol. 50(11), pages 3009-3031, July.
  2. White, Halbert, 1982. "Maximum Likelihood Estimation of Misspecified Models," Econometrica, Econometric Society, vol. 50(1), pages 1-25, January.
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