Model Specification Testing for Nonlinear Multivariate Cointegrating Regressions

85 Pages Posted: 19 Feb 2014 Last revised: 19 Jul 2016

See all articles by Chaohua Dong

Chaohua Dong

Zhongnan University of Economics and Law

Jiti Gao

Monash University - Department of Econometrics & Business Statistics

Dag Tjostheim

University of Bergen - Faculty of Mathematics and Natural Sciences

Jiying Yin

University of Adelaide

Date Written: July 18, 2016

Abstract

This paper considers a general model specification test for nonlinear multivariate cointegrating regressions where the regressor consists of a univariate integrated time series and a vector of stationary time series. The regressors and the errors are generated from the same innovations, so that the model accommodates endogeniety. A new and simple test is proposed and the resulting asymptotic theory is established. The test statistic is constructed based on a natural distance function between a nonparametric estimate and a smoothed parametric counterpart. The asymptotic distribution of the test statistic under the parametric specification is proportional to that of a local-time random variable with a known distribution. In addition, the finite sample performance of the proposed test is evaluated through using both simulated and real data examples.

Keywords: Cointegration, endogeneity, nonparametric kernel estimation, parametric model specification, time series

JEL Classification: C12, C14, C22

Suggested Citation

Dong, Chaohua and Gao, Jiti and Tjostheim, Dag and Yin, Jiying, Model Specification Testing for Nonlinear Multivariate Cointegrating Regressions (July 18, 2016). Available at SSRN: https://ssrn.com/abstract=2396967 or http://dx.doi.org/10.2139/ssrn.2396967

Chaohua Dong

Zhongnan University of Economics and Law ( email )

182 Nanhu Avenue
Wuhan, Hubei 430073
China

Jiti Gao (Contact Author)

Monash University - Department of Econometrics & Business Statistics ( email )

900 Dandenong Road
Caulfield East, Victoria 3145
Australia
61399031675 (Phone)
61399032007 (Fax)

HOME PAGE: http://www.jitigao.com

Dag Tjostheim

University of Bergen - Faculty of Mathematics and Natural Sciences ( email )

Norway

Jiying Yin

University of Adelaide ( email )

No 233 North Terrace, School of Commerce
Adelaide, South Australia 5005
Australia

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