TESTING FOR LINEARITY IN REGRESSIONS WITH I(1) PROCESSES

Yoichi Arai

Hitotsubashi Journal of Economics, 2016, vol. 57, issue 1, 111-138

Abstract: We propose a generalized version of the RESET test for linearity in regressions with I(1) processes against various nonlinear alternatives and no cointegration. The proposed test statistic for linearity is given by the Wald statistic and its limiting distribution under the null hypothesis is shown to be a χ2 distribution with a "leads and lags" estimation technique. We show that the test is consistent against a class of nonlinear alternatives and no cointegration. Finite-sample simulations show that the empirical size is close to the nominal one and the test succeeds in detecting both nonlinearity and no cointegration.

Keywords: cointegration; I(1) processes; no cointegration; nonlinear cointegration; RESET test (search for similar items in EconPapers)
JEL-codes: C22 C32 (search for similar items in EconPapers)
Date: 2016
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https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/27943/HJeco0570101110.pdf

Related works:
Working Paper: Testing for Linearity in Regressions with I(1) Processes (2015)
Working Paper: Testing for Linearity in Regressions with I (1) processes (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:hit:hitjec:v:57:y:2016:i:1:p:111-138

DOI: 10.15057/27943

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