A low-dimension portmanteau test for non-linearity

Jennifer Castle and David Hendry

Journal of Econometrics, 2010, vol. 158, issue 2, 231-245

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-Gabor polynomials ([Thursby and Schmidt, 1977], [Tsay, 1986] and [Teräsvirta et al., 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 compares 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)
Date: 2010
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Citations: View citations in EconPapers (39)

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Working Paper: A Low-Dimension Portmanteau Test for Non-linearity (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:158:y:2010:i:2:p:231-245

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