A non-nested test of level-differenced versus log-differenced stationary models |
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Authors: | Bahram Pesaran M Hashem Pesaran |
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Institution: |
a Bank of England, University of East London,
b Trinity College, Cambridge |
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Abstract: | This paper considersthe applicationof the simulated Cox test procedure developed in Pesaran and Pesaran (1993) to test linear versus log-linear models. The test procedure can also be applied to other generalized linear regression models such as level-difference stationary models versus the log-difference stationary models. In order to compare the small sample performanceof the proposed test with other tests extant in the literature, the paper also reports the resultsof a numberof Monte Carlo experiments using the experimental framework of Godfrey et al. (1988). The Monte Carlo results provide strong support for a simplified version of the simulatedCox test over the PE and the BM tests, but suggest that there is little to choose between the simulated Cox test and the DL test. |
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Keywords: | Simulatedcoxtest Non-Nestedhypothesis Log-Differencedmodels Monte Carlo Experiments |
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