Distribution-free specification tests for dynamic linear models

-process of the residuals. This transformation approximates the martingale component of the process so that it converges weakly to the standard Brownian motion under the null hypothesis. One feature of our setup is that we do not require to specify the dynamic structure of the regressors. Due to this, the transformation employs a semi-parametric correction that does not restrict the class of local alternatives that our tests can detect, in contrast with other works using smoothing techniques. A Monte Carlo study illustrates the finite sample performance of the tests. Copyright (C) The Author(s). Journal compilation (C) Royal Economic Society 2009