Testing the long-run response in time series environmetric and econometric models

✍ Scribed by Wasif Rasheed; Michael R. Veall

• Publisher: John Wiley and Sons
• Year: 1998
• Tongue: English
• Weight: 132 KB
• Volume: 9
• Category: Article
• ISSN: 1180-4009
• DOI: 10.1002/(sici)1099-095x(199801/02)9:1<101::aid-env288>3.0.co;2-l

✦ Synopsis

Time series models are a common tool in both environmetrics and econometrics. Dynamic eects are accommodated by the inclusion of lagged variables. Tests of null hypotheses involving `long-run' eects are not invariant and, surprisingly, the most commonly used form involves a non-linear hypothesis when an equivalent linear form is available. As examples we study a simple hydrological model of river ¯ow, a simple electricity demand model and a number of arti®cially constructed data sets designed to illustrate the issues in a Monte Carlo context. We conclude that the dierences due to test form may be large and (a) when it makes a dierence, the linear form is to be preferred in terms of accuracy of test size; (b) even with the linear form, with trended data the size distortion may be so large that it may be necessary to simulate critical values for each problem; and (c) if the persistence in the dependent variable is large, test power can be very low.