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Testing the lag length of vector autoregressive models: A power comparison between portmanteau and Lagrange multiplier tests

Author

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  • Raja Ben Hajria
  • Salah Khardani
  • Hamdi Raïssi

Abstract

In this paper we provide an asymptotic theoretical power comparison in the Bahadur sense, between the portmanteau and Breusch-Godfrey Lagrange Multiplier (LM) tests for the goodness-of-fit checking of vector autoregressive (VAR) models. The merits and the drawbacks of the studied tests are illustrated using Monte Carlo experiments.

Suggested Citation

  • Raja Ben Hajria & Salah Khardani & Hamdi Raïssi, 2017. "Testing the lag length of vector autoregressive models: A power comparison between portmanteau and Lagrange multiplier tests," Working Papers 2017-03, Escuela de Negocios y Economía, Pontificia Universidad Católica de Valparaíso.
    • Handle: RePEc:ucv:wpaper:2017-03
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    References listed on IDEAS

    as
    1. Breusch, T S, 1978. "Testing for Autocorrelation in Dynamic Linear Models," Australian Economic Papers, Wiley Blackwell, vol. 17(31), pages 334-355, December.
    2. Gonzalo, Jesus & Pitarakis, Jean-Yves, 1998. "Specification via model selection in vector error correction models," Economics Letters, Elsevier, vol. 60(3), pages 321-328, September.
    3. Lütkepohl, Helmut, 2008. "Problems related to over-identifying restrictions for structural vector error correction models," Economics Letters, Elsevier, vol. 99(3), pages 512-515, June.
    4. Pfaff, Bernhard, 2008. "VAR, SVAR and SVEC Models: Implementation Within R Package vars," Journal of Statistical Software, Foundation for Open Access Statistics, vol. 27(i04).
    5. Stock, James H. & Watson, Mark W., 1989. "Interpreting the evidence on money-income causality," Journal of Econometrics, Elsevier, vol. 40(1), pages 161-181, January.
    6. Helmut Lütkepohl, 2005. "Vector Error Correction Models," Springer Books, in: New Introduction to Multiple Time Series Analysis, chapter 6, pages 237-267, Springer.
    7. Godfrey, Leslie G, 1978. "Testing for Higher Order Serial Correlation in Regression Equations When the Regressors Include Lagged Dependent Variables," Econometrica, Econometric Society, vol. 46(6), pages 1303-1310, November.
    8. Bruggemann, Ralf & Lutkepohl, Helmut & Saikkonen, Pentti, 2006. "Residual autocorrelation testing for vector error correction models," Journal of Econometrics, Elsevier, vol. 134(2), pages 579-604, October.
    9. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
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    More about this item

    Keywords

    VAR model; VECM model; Cointegration; Residual autocorrelations; Portmanteau tests; Lagrange Multiplier tests.;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics

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