A low-dimension portmanteau test for non-linearity.

Journal article

A new test for non-linearity in the conditional mean is proposed using functions of the principal components of regressors. The test extends the non-linearity tests based on KolmogorovGabor polynomials (Thursby and Schmidt, 1977; Tsay, 1986; Tersvirta et al., 1993), but circumvents problems of high dimensionality, is equivariant to collinearity, and includes exponential functions, so is a portmanteau test with power against a wide range of possible alternatives. A Monte Carlo analysis compares the performance of the test to the optimal infeasible test and to alternative tests. The relative performance of the test is encouraging: the test has the appropriate size and has high power in many situations.

Authors: Castle, J; Hendry, D

• Publisher: Elsevier
• Journal: Journal of Econometrics
• Volume: 158
• Issue: 2
• Pages: 231 - 245
• Publication date: 2010-01-01
• DOI: 10.1016/j.jeconom.2010.01.006
• ISSN: 0304-4076
• Language: English