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Diagnostic tests as residual analysis

Adrian Pagan () and Anthony Hall ()

Published Paper Series from Finance Discipline Group, UTS Business School, University of Technology, Sydney

Abstract: Many applied workers are strongly oriented to residual analysis for assessing model adequacy. Formal test statistics of adequacy however are frequently derived from likelihood theory, particularly through Lagrange Multipliers. In contraGt, the present paper derives the formal statistics by concentrating Upon the distribution of residuals. It is shown that most existing tests can be derived in this way from a few elementary principles of specification analysis. One advantage of this alternative methodology is that it highlights some difficulties in existing approaches and simultaneously indicates a resolution of them; a good example being testing for heteroscedasticity in simultaneous equations. Other issues such as independence and robustness of diagnostic tests are also easily explored within the proposed framework.

Keywords: Diagnostic Tests; Residual Analysis; Lagraange Multiplier Tests; Heteraoscedasticity; Autocorraelation; Functional Form; Specification Error; Normalality; Independence Of Diagnostic Tests; Diagnostic Tests In Simultaneous Equations (search for similar items in EconPapers)
Date: 1983-01-01
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Published in: Pagan, A. R. and Hall, A. D., 1983, "Diagnostic tests as residual analysis", Econometric Reviews, 2(2), 159-218.

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