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Specification Testing for Nonlinear Multivariate Cointegrating Regressions

Author

Listed:
  • Chaohua Dong

    ()

  • Jiti Gao

    ()

  • Dag Tjostheim

    ()

  • Jiying Yin

    ()

Abstract

This paper considers a general model specification test for nonlinear multivariate cointegrating regressions where the regressor consists of a univariate integrated time series and a vector of stationary time series. The regressors and the errors are generated from the same innovations, so that the model accommodates endogeniety. A new and simple test is proposed and the resulting asymptotic theory is established. The test statistic is constructed based on a natural distance function between a nonparametric estimate and a smoothed parametric counterpart. The asymptotic distribution of the test statistic under the parametric specification is proportional to that of a local-time random variable with a known distribution. In addition, the finite sample performance of the proposed test is evaluated through using both simulated and real data examples.

Suggested Citation

  • Chaohua Dong & Jiti Gao & Dag Tjostheim & Jiying Yin, 2014. "Specification Testing for Nonlinear Multivariate Cointegrating Regressions," Monash Econometrics and Business Statistics Working Papers 8/14, Monash University, Department of Econometrics and Business Statistics.
  • Handle: RePEc:msh:ebswps:2014-8
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    File URL: http://business.monash.edu/econometrics-and-business-statistics/research/publications/ebs/wp08-14.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    ointegration; endogeneity; nonparametric kernel estimation; parametric model speci-fication; time series.;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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