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Testing for nonlinearity in mean in the presence of heteroskedasticity

  • Stan Hurn
  • Ralf Becker

This paper considers an important practical problem in testing time-series data for nonlinearity in mean, namely, the distortion in the size of the test encountered if the the data are heteroskedastic. It is shown that using a heteroskedastic consistent auxiliary regression together with the wild bootstrap is an e®ective way of dealing with the problem. Simulation results indicate that signi¯cant improvements in empirical size are obtained, particularly in small samples.

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File URL: http://www.bus.qut.edu.au/stanhurn/documents/RobustTesting.pdf
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Paper provided by School of Economics and Finance, Queensland University of Technology in its series Stan Hurn Discussion Papers with number 2006-02.

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Date of creation: 15 Jun 2006
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Handle: RePEc:qut:sthurn:2006-02
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Web page: http://www.bus.qut.edu.au/faculty/economics/
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  19. Lee, Tae-Hwy & White, Halbert & Granger, Clive W. J., 1993. "Testing for neglected nonlinearity in time series models : A comparison of neural network methods and alternative tests," Journal of Econometrics, Elsevier, vol. 56(3), pages 269-290, April.
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