Diagnostic checking of Markov multiplicative error models
Bin Guo and
Economics Letters, 2018, vol. 170, issue C, 139-142
In a multiplicative error model (MEM), correct specification of the conditional mean function and that of the error distribution are of crucial importance. In this paper, we propose a test that can jointly check the two specifications in an MEM admitting a Markov structure. The proposed test is constructed by comparing the nonparametric kernel estimator with a parametric estimator of the marginal density function. Its asymptotic properties under the null and the alternative hypotheses are established. We propose a parametric bootstrap procedure to approximate the null distribution. A simulation study shows that the proposed test enjoys nice finite sample performance, while a real data example demonstrates its practical merit.
Keywords: Multiplicative error model; Specification test; Time series (search for similar items in EconPapers)
JEL-codes: C12 C22 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:170:y:2018:i:c:p:139-142
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