Testing for randomness in a random coefficient autoregression model

A-Tier
Journal: Journal of Econometrics
Year: 2019
Volume: 209
Issue: 2
Pages: 338-352

Authors (2)

Horváth, Lajos (University of Utah) Trapani, Lorenzo (not in RePEc)

Score contribution per author:

2.011 = (α=2.01 / 2 authors) × 2.0x A-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

Abstract

We propose a test to discern between an ordinary autoregressive model, and a random coefficient one. To this end, we develop a full-fledged estimation theory for the variances of the idiosyncratic innovation and of the random coefficient, based on a two-stage WLS approach. Our results hold irrespective of whether the series is stationary or nonstationary, and, as an immediate result, they afford the construction of a test for ”relevant” randomness. Further, building on these results, we develop a randomised test statistic for the null that the coefficient is non-random, as opposed to the alternative of a standard RCA(1) model. Monte Carlo evidence shows that the test has the correct size and very good power for all cases considered.

Technical Details

RePEc Handle
repec:eee:econom:v:209:y:2019:i:2:p:338-352
Journal Field
Econometrics
Author Count
2
Added to Database
2026-02-02