Scandinavian Working Papers in Economics

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

No 386: Diagnostic Checking in a Flexible Nonlinear Time Series Model

Marcelo Medeiros () and Alvaro Veiga ()
Additional contact information
Marcelo Medeiros: Dept. of Economic Statistics, Stockholm School of Economics, Postal: P.O. Box 6501, S-113 83 Stockholm, Sweden
Alvaro Veiga: Dept. of Electrical Engineering, Catholic University of Rio de Janeiro, Postal: Rua Marquês de São Vicente 225, Rio de Janeiro, RJ, Brazil 22453-900,

Abstract: This paper considers a sequence of misspecification tests for a flexible nonlinear time series model. The model is a generalization of both the Smooth Transition AutoRegressive (STAR) and the AutoRegressive Artificial Artificial Neural Network (AR-ANN) models. The tests are Lagrange multiplier (LM) type tests of parameter constancy against the alternative of smoothly changing ones, of serial independence, and constant variance of the error term against the hypothesis that the variance smoothly changes between regimes. The small sample behaviour of the proposed tests is evaluated throw a Monte-Carlo study and the results show that the tests have size close to the nominal one and a good power.

Keywords: Time series; nonlinear models; STAR models; neural networks; statistical inference; parameter constancy; serial independence; heteroscedasticity; misspecification

JEL-codes: C22; C51

24 pages, First version: June 6, 2000. Revised: January 15, 2001.

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