Scandinavian Working Papers in Economics

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

No 94: Power Properties of Linearity Tests for Time Series

Timo Teräsvirta ()
Additional contact information
Timo Teräsvirta: Department of Economic Statistics, Postal: Stockholm School of Economics, Box 6501, 113 83 Stockholm, Sweden.

Abstract: This paper examines the power properties of several linearity tests applied in time series analysis. The tests are the ones Lee et al. (1993) used in their Monte Carlo study. The main tool used for power comparisons in this paper is the Pitman asymptotic relative efficiency. The results generally strengthen the outcome of the simulations and complement some results in Lee et al. (1993). They also suggest guidelines for designing Monte Carlo experiments for linearity tests.

Keywords: Bilinear model; local asymptotic power; nonlinear time series; Pitman asymptotic relative efficiency; threshold autoregressive model

JEL-codes: C22; C52

15 pages, January 1996

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