Consistent and Non Degenerate Model Specification Tests Against Smooth Transition and Neural Network Alternatives

Jonathan B. Hill

Annals of Economics and Statistics, 2008, issue 90, 145-179

Abstract: We develop a regression model specification test that directs maximal power toward smooth transition functional forms, and is consistent against any deviation from the null specification. We provide new details regarding whether consistent parametric tests of functional form are asymptotically degenerate: a test of linear autoregression against STAR alternatives is never degenerate. Moreover, a test of Exponential STAR has power attributes entirely associated with the choice of threshold. In a simulation experiment in which all parameters are randomly selected the proposed test has power nearly identical to a most-powerful test for true STAR, neural network and SETAR processes, and dominates popular tests. We apply the test to U.S. output, money, prices and interest rates.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:adr:anecst:y:2008:i:90:p:145-179

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