This paper develops a complete limit theory for Wald tests of Granger causality in levels vector autoregression (VAR's) and Johansen-type error correction models (ECM's) allowing for the presence of stochastic trends and cointegration. Earlier work by Sims, Stock and Watson (1990) on trivariate...

This paper proposes new specification tests for conditional models with discrete responses. In particular, we can test the static and dynamic ordered choice model specifications, which is key to apply efficient maximum likelihood methods, to obtain consistent estimates of partial effects and to...

We provide a new test for equality of covariance matrices that leads to a convenient mechanism for testing specification using the information matrix equality. The test relies on a new characterization of equality between two k dimensional positive-definite matrices A and B: the traces of...

We develop a method of testing linearity using power transforms of regressors, allowing for stationary processes and time trends. The linear model is a simplifying hypothesis that derives from the power transform model in three different ways, each producing its own identification problem. We...

We propose a new adequacy test and a graphical evaluation tool for nonlinear dynamic models. The proposed techniques can be applied in any setup where parametric conditional distribution of the data is specified, in particular to models involving conditional volatility, conditional higher...

We propose a new method of testing stochastic dominance that improves on existing tests based on the standard bootstrap or subsampling. The method admits prospects involving infinite as well as finite dimensional unknown parameters, so that the variables are allowed to be residuals from...

We propose a nonparametric test of conditional independence based on the empirical distribution function. The asymptotic null distribution is a mixture of chi-squares. A bootstrap procedure is proposed for calculating the critical values. Our test has power against alternatives at distance...

This paper considers a generalized method of moments (GMM) estimation problem in which one has a vector of moment conditions, some of which are correct and some incorrect. The paper introduces several procedures for consistently selecting the correct moment conditions. The procedures also can...

This paper considers tests for structural instability of short duration, such as at the end of the sample. The key feature of the testing problem is that the number, m, of observations in the period of potential change is relatively small -- possibly as small as one. The well-known F test of...

The standard conclusion that is drawn from this empirical evidence is that many or most aggregate economic time series contain a unit root. However, it is important to note that in this empirical work the unit root is set up as the null hypothesis testing is carried out ensures that the null...