Scandinavian Working Papers in Economics

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

No 56: Testing the Adequacy of Smooth Transition Autoregressive Models

Øyvind Eitrheim and Timo Teräsvirta ()
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Timo Teräsvirta: Dept. of Economic Statistics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden

Abstract: Smooth transition autoregressive models are a flixible family of nonlinear time series models that have also been used for modelling economic data. This paper contributes to the evaluation stage of a proposed specification, estimation, and evaluation cycle of this models by introducing a Lagrange multiplier (LM) test for the hypothesis of no error autocorrelation and LM type tests for the hypothesis of remaining nonlinearity and that of parameter constancy. Small sample properies of the F versions of the tests and some alternative tests are investigated by simulation. The results indicate that the proposed tests can be applied in small samples already.

Keywords: Autocorrelation; Lagrange Multiplier test; model evaluation; model misspecification; nonlinear time series; time series modelling

JEL-codes: C22

23 pages, May 1995

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