Finite Sample Properties of Tests Based on Prewhitened Nonparametric Covariance Estimators

David Preinerstorfer

MPRA Paper from University Library of Munich, Germany

Abstract: We analytically investigate size and power properties of a popular family of procedures for testing linear restrictions on the coefficient vector in a linear regression model with temporally dependent errors. The tests considered are autocorrelation-corrected F-type tests based on prewhitened nonparametric covariance estimators that possibly incorporate a data-dependent bandwidth parameter, e.g., estimators as considered in Andrews and Monahan (1992), Newey and West (1994), or Rho and Shao (2013). For design matrices that are generic in a measure theoretic sense we prove that these tests either suffer from extreme size distortions or from strong power deficiencies. Despite this negative result we demonstrate that a simple adjustment procedure based on artificial regressors can often resolve this problem.

Keywords: Autocorrelation robustness; HAC test; fixed-b test; prewhitening; size distortion; power deficiency; artificial regressors. (search for similar items in EconPapers)
JEL-codes: C12 C32 (search for similar items in EconPapers)
Date: 2014-08-20
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Citations: View citations in EconPapers (1)

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