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

Fingerprint

Cointegration
Testing
Linearity
Limiting distribution
Simulation
Statistics
Test statistic
Nonlinearity
Finite sample
Lag

Keywords

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

ASJC Scopus subject areas

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

Cite this

Testing for linearity in regressions with i(1) processes. / Arai, Yoichi.

In: Hitotsubashi Journal of Economics, Vol. 57, No. 1, 01.06.2016, p. 111-138.

Research output: Contribution to journalArticle

@article{9d32cfce77f24e2dacbd2825c4cbcc6d,
title = "Testing for linearity in regressions with i(1) processes",
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.",
keywords = "Cointegration, I(1) processes, No cointegration, Nonlinear cointegration, RESET test",
author = "Yoichi Arai",
year = "2016",
month = "6",
day = "1",
language = "English",
volume = "57",
pages = "111--138",
journal = "Hitotsubashi Journal of Economics",
issn = "0018-280X",
publisher = "Hitotsubashi University",
number = "1",

}

TY - JOUR

T1 - Testing for linearity in regressions with i(1) processes

AU - Arai, Yoichi

PY - 2016/6/1

Y1 - 2016/6/1

N2 - 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.

AB - 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.

KW - Cointegration

KW - I(1) processes

KW - No cointegration

KW - Nonlinear cointegration

KW - RESET test

UR - http://www.scopus.com/inward/record.url?scp=84973307949&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=84973307949&partnerID=8YFLogxK

M3 - Article

AN - SCOPUS:84973307949

VL - 57

SP - 111

EP - 138

JO - Hitotsubashi Journal of Economics

JF - Hitotsubashi Journal of Economics

SN - 0018-280X

IS - 1

ER -