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Robust Nonnested Testing for Ordinary Least Squares Regression When Some of the Regressors are Lagged Dependent Variables

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  • Leslie G. Godrey

Abstract

The problem of testing nonnested regression models that include lagged values of the dependent variable as regressors is discussed. It is argued that it is essential to test for error autocorrelation if ordinary least squares and the associated J and F tests are to be used. A heteroskedasticity-robust joint test against a combination of the artificial alternatives used for autocorrelation and nonnested hypothesis tests is proposed. Monte Carlo results indicate that implementing this joint test using a wild bootstrap method leads to a well-behaved procedure and gives better control of finite sample significance levels than asymptotic critical values.

Suggested Citation

  • Leslie G. Godrey, 2010. "Robust Nonnested Testing for Ordinary Least Squares Regression When Some of the Regressors are Lagged Dependent Variables," Discussion Papers 10/22, Department of Economics, University of York.
  • Handle: RePEc:yor:yorken:10/22
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    File URL: https://www.york.ac.uk/media/economics/documents/discussionpapers/2010/1022.pdf
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    References listed on IDEAS

    as
    1. Goncalves, Silvia & Kilian, Lutz, 2004. "Bootstrapping autoregressions with conditional heteroskedasticity of unknown form," Journal of Econometrics, Elsevier, vol. 123(1), pages 89-120, November.
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    Keywords

    nonnested models; heteroskedasticity-robust; wild bootstrap;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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