A Low-Dimension Portmanteau Test for Non-linearity

Jennifer Castle and David Hendry

No 471, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: A new test for non-linearity in the conditional mean is proposed using functions of the principal components of regressors. The test extends the non-linearity tests based on Kolmogorov-Gavor polynomials (Thursby and Schmidt, 1977, Tsay, 1986, and Terasvirta, Lin and Granger, 1993), but circumvents problems of high dimensionality, is equivariant to collinearity, and includes exponential functions, so is a portmanteau test with power against a wide range of possible alternatives. A Monte Carlo analysis compared the performance of the test to the optimal infeasible test and to alternative tests. The relative performance of the test is encouraging: the test has the appropriate size and has high power in many situations.

Keywords: Functional form; Portmanteau test; Non-linearity; Principal components; Collinearity (search for similar items in EconPapers)
JEL-codes: C51 C52 (search for similar items in EconPapers)
Date: 2010-01-01
New Economics Papers: this item is included in nep-ecm and nep-ets
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Citations: View citations in EconPapers (37)

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Journal Article: A low-dimension portmanteau test for non-linearity (2010)
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