Testing Moving Average Against Autoregressive Disturbances in the Linear Regression Model

Paramsothy Silvapulle and Maxwell L. King

No 267070, Department of Econometrics and Business Statistics Working Papers from Monash University, Department of Econometrics and Business Statistics

Abstract: This paper considers testing for MA(1) against AR(1) disturbances in the linear regression model. Tests investigated include approximate point optimal invariant (POI) tests, an asymptotic test of the second-order residual autocorrelation coefficient and a Lagrange multiplier (LM) test. A Monte Carlo experiment compares their small-sample performances. Of the asymptotic tests, the LM test has the most satisfactory sizes, while its rival has the better overall power. We find the approximate POI tests have superior size and power properties in comparison to the asymptotic tests. An approximate POI test is applied to a random walk model for Australian real interest rates.

Keywords: Research; Methods/Statistical; Methods (search for similar items in EconPapers)
Pages: 27
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Persistent link: https://EconPapers.repec.org/RePEc:ags:monebs:267070

DOI: 10.22004/ag.econ.267070

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