I am grateful to Peter Burridge and two referees for their helpful comments.
Robust Non-nested Testing for Ordinary Least Squares Regression when Some of the Regressors are Lagged Dependent Variables*
Article first published online: 20 FEB 2011
© Blackwell Publishing Ltd and the Department of Economics, University of Oxford, 2011
Oxford Bulletin of Economics and Statistics
Volume 73, Issue 5, pages 651–668, October 2011
How to Cite
Godfrey, L. G. (2011), Robust Non-nested Testing for Ordinary Least Squares Regression when Some of the Regressors are Lagged Dependent Variables. Oxford Bulletin of Economics and Statistics, 73: 651–668. doi: 10.1111/j.1468-0084.2010.00630.x
- Issue published online: 14 SEP 2011
- Article first published online: 20 FEB 2011
- Final Manuscript Received: October 2010
The problem of testing non-nested regression models that include lagged values of the dependent variable as regressors is discussed. It is argued that it is essential to test for error autocorrelation if ordinary least squares and the associated J and F tests are to be used. A heteroskedasticity–robust joint test against a combination of the artificial alternatives used for autocorrelation and non-nested hypothesis tests is proposed. Monte Carlo results indicate that implementing this joint test using a wild bootstrap method leads to a well-behaved procedure and gives better control of finite sample significance levels than asymptotic critical values.