Some Extensions of Asymptotic F and t Theory in Nonstationary Regressions

Abstract

The author develops and extends the asymptotic F- and t-test theory in linear regression models where the regressors could be deterministic trends, unit-root processes, near-unit-root processes, among others. The author considers both the exogenous case where the regressors and the regression error are independent and the endogenous case where they are correlated. In the former case, the author designs a new set of basis functions that are invariant to the parameter estimation uncertainty and uses them to construct a new series long-run variance estimator. The author shows that the F-test version of the Wald statistic and the t-statistic are asymptotically F and t distributed, respectively. In the latter case, the author shows that the asymptotic F and t theory is still possible, but one has to develop it in a pseudo-frequency domain. The F and t approximations are more accurate than the more commonly used chi-squared and normal approximations. The resulting F and t tests are also easy to implement – they can be implemented in exactly the same way as the F and t tests in a classical normal linear regression.

Citation

Sun, Y. (2023), "Some Extensions of Asymptotic F and t Theory in Nonstationary Regressions", Chang, Y., Lee, S. and Miller, J.I. (Ed.) Essays in Honor of Joon Y. Park: Econometric Theory (Advances in Econometrics, Vol. 45A), Emerald Publishing Limited, Leeds, pp. 319-347. https://doi.org/10.1108/S0731-90532023000045A011