A Consistent Diagnostic Test for Regression Models Using Projections

Juan Carlos Escanciano

No 09/05, Faculty Working Papers from School of Economics and Business Administration, University of Navarra

Abstract: This paper proposes a consistent test for the goodness-of-fit of parametric regression models which overcomes two important problems of the existing tests, namely, the poor empirical power and size performance of the tests due to the curse of dimensionality and the choice of subjective parameters like bandwidths, kernels or integrating measures. We overcome these problems by using a residual marked empirical process based on projections (RMPP). We study the asymptotic null distribution of the test statistic and we show that our test is able to detect local alternatives converging to the null at the parametric rate. It turns out that the asymptotic null distribution of the test statistic depends on the data generating process, so a bootstrap procedure is considered. Our bootstrap test is robust to higher order dependence, in particular to conditional heteroskedasticity. For completeness, we propose a new minimum distance estimator constructed through the same RMPP as in the testing procedure. Therefore, the new estimator inherits all the good properties of the new test. We establish the consistency and asymptotic normality of the new minimum distance estimator. Finally, we present some Monte Carlo evidence that our testing procedure can play a valuable role in econometric regression modeling.

JEL-codes: C12 C14 C52 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2005-05-03
New Economics Papers: this item is included in nep-ecm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Forthcoming, Econometric Theory

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http://www.unav.edu/documents/10174/6546776/1132674866_wp0905.pdf (application/pdf)

Related works:
Journal Article: A CONSISTENT DIAGNOSTIC TEST FOR REGRESSION MODELS USING PROJECTIONS (2006)
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