Testing for linearity in regressions with i(1) processes

Research output: Contribution to journalArticle

Abstract

We propose a generalized version of the RESET test for linearity in regressions with I(1) processes against various nonlinear alternatives and no cointegration. The proposed test statistic for linearity is given by the Wald statistic and its limiting distribution under the null hypothesis is shown to be a χ2 distribution with a "leads and lags" estimation technique. We show that the test is consistent against a class of nonlinear alternatives and no cointegration. Finite-sample simulations show that theempirical sizeis closeto thenominal oneand thetest succeeds in detecting both nonlinearity and no cointegration.

Original languageEnglish
Pages (from-to)111-138
Number of pages28
JournalHitotsubashi Journal of Economics
Volume57
Issue number1
Publication statusPublished - 2016 Jun 1
Externally publishedYes

Keywords

  • Cointegration
  • I(1) processes
  • No cointegration
  • Nonlinear cointegration
  • RESET test

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Economics and Econometrics

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