By L. G. Godfrey

Via bringing jointly effects from the turning out to be literature in econometrics on misspecification trying out, this learn offers theoretical analyses and handy equipment for the implementation of checks in utilized paintings. even though the most emphasis is at the Lagrange multiplier precept, a number of different ways are mentioned and the relationships between diverse equipment are tested. the writer stories basic tests of version adequacy that don't contain the formula of an alternate speculation. normal and particular checks are mentioned within the context of a number of regression types, platforms of simultaneous equations, and versions with qualitative or restricted based variables. This wide-ranging yet built-in booklet can be worthy to a large viewers of utilized and theoretical researchers, graduate scholars, economists.

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Additional info for Misspecification Tests in Econometrics: The Lagrange Multiplier Principle and Other Approaches

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34); see Silvey (1959). Procedures whose test statistics have the same asymptotic distribution under the null hypothesis and all sequences of local alternatives are said to be asymptotically equivalent tests. Although the strategy of considering only local alternatives does lead to LR, W and LM having asymptotic powers strictly less than unity, the asymptotic equivalence of the procedures implies that this approach does not provide any basis for choosing between them. It does, however, provide some information about the status of these three tests relative to other procedures.

M tests can, therefore, be derived using sample covariances between such exogenous functions and the score evaluated at the restricted MLE. M tests which are based upon functions that have conditional expectation equal to zero are termed CM tests by Newey. 23) where Ff(0i) is a matrix of functions of exogenous variables and 0x (see Newey, 1985a, pp. 1055-60). 7 Summary and qualifications 39 different choices of the matrix Fr(#i) will affect the power of the CM test, but not its asymptotic validity.

4. While the classical normal regression model often provides a valuable starting point for analysis and permits the derivation of interesting finite sample results, its assumptions rule out many cases of considerable practical relevance. 1), there can be no such conflict if either W< c or LM > c. 43 44 2. Inequalities between criteria in linear regression relaxed. In particular, it seems useful to explore the consequences of allowing for lagged values of the dependent variable in the regressors, nonnormal disturbances, and non-linear parameter restrictions.

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