Alternative Nonnested Specification Tests of Time Series Investment Models
This paper develops and compares nonnested hypothesis tests for linear regression models with first-order serially correlated errors. It extends the nonnested testing procedures of Pesaran, Fisher and McAleer, and Davidson and MacKinnon, and compares their performance on four conventional models of aggregate investment demand using quarterly U.S. investment data from 1951:1 to 1983:IV. The data and the nonnested hypothesis tests initially indicate that no model is correctly specified, and that the tests are occasionally intransitive in their assessments. Before rejecting these conventional models of investment demand, we go on to investigate the small sample properties of these different nonnested test procedures through a series of monte carlo studies. These investigations demonstrate that when there is significant serial correlation, there are systematic finite sample biases in the nominal size and power of these test statistics. The direction of the bias is toward rejection of the null model, although it varies considerably by the type of test and estimation technique. After revising our critical levels for this finite sample bias, we conclude that the accelerator model of equipment investment cannot be rejected by any of the other alternatives.
|Date of creation:||Jun 1985|
|Date of revision:|
|Publication status:||published as Bernanke, Bohn, and Reiss. "Alternative Nonnested Specification Tests of Time Series Investment Models," in Journal of Econometrics, Vol. 37, No. 2, March 1988, pp. 293-326.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Chow, Gregory C & Lin, An-loh, 1971.
"Best Linear Unbiased Interpolation, Distribution, and Extrapolation of Time Series by Related Series,"
The Review of Economics and Statistics,
MIT Press, vol. 53(4), pages 372-75, November.
- Tom Doan, . "CHOWLIN: RATS procedure to distribute a series to a higher frequency using related series," Statistical Software Components RTS00036, Boston College Department of Economics.
- Tom Doan, . "DISAGGREGATE: RATS procedure to implement general disaggregation (interpolation/distribution) procedure," Statistical Software Components RTS00050, Boston College Department of Economics.
- T. S. Breusch & A. R. Pagan, 1980.
"The Lagrange Multiplier Test and its Applications to Model Specification in Econometrics,"
Review of Economic Studies,
Oxford University Press, vol. 47(1), pages 239-253.
- Breusch, T.S. & Pagan, A.R., . "The Lagrange multiplier test and its applications to model specification in econometrics," CORE Discussion Papers RP 412, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Bean, Charles R, 1981. "An Econometric Model of Manufacturing Investment in the UK," Economic Journal, Royal Economic Society, vol. 91(361), pages 106-21, March.
- Russell Davidson & James G. MacKinnon, 1980.
"Several Tests for Model Specification in the Presence of Alternative Hypotheses,"
378, Queen's University, Department of Economics.
- Davidson, Russell & MacKinnon, James G, 1981. "Several Tests for Model Specification in the Presence of Alternative Hypotheses," Econometrica, Econometric Society, vol. 49(3), pages 781-93, May.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberte:0049. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.