Finite Sample of the Durbin-Watson Test against Fractionally Integrated Disturbances
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Date
2004
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Universitätsbibliothek Dortmund
Abstract
We consider the finite sample power of various tests against serial correlation in the
disturbances of a linear regression when these disturbances follow a stationary long memory
process. It emerges that the power depends on the form of the regressor matrix and that, for
the Durbin-Watson test and many other tests that can be written as ratios of quadratic forms
in the disturbances, the power can drop to zero for certain regressors. We also provide a
means to detect this zero-power trap. Our results depend solely on the correlation structure
and allow for fairly arbitrary nonlinearities.
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Keywords
Durbin-Watson test, power, autocorrelation, long memory