Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 549: Testing constancy of the error covariance matrix in vector models

Bruno Eklund () and Timo Teräsvirta ()
Additional contact information
Bruno Eklund: Dept. of Economic Statistics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden
Timo Teräsvirta: Dept. of Economic Statistics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden

Abstract: This paper contains a Lagrange multiplier test of the hypothesis that the covariance matrix of a multivariate time series model is constant over time. It is further assumed that under the alternative, the error variances are time-varying whereas the correlation remain constant over time. Under the parameterized alternative hypothesis the variance may change continuously as a function of time or some observable stochastic variables.

Keywords: error covariance structure; Lagrange multiplier test; model misspecification; Monte Carlo simulation

JEL-codes: C32; C52

24 pages, First version: November 28, 2003. Revised: January 18, 2006.

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Published as
Bruno Eklund and Timo Teräsvirta, (2007), 'Testing constancy of the error covariance matrix in vector models', Journal of Econometrics, vol 140, pages 753-780

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