Application of the RESET test to the original Andersen-Jordan equation

Baghestani, Hamid

doi:10.1016/0164-0704(91)90036-t

Cited by 3 publications

(2 citation statements)

References 10 publications

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“…The Ljung-Box Q-statistic test examines the null hypothesis of no autocorrelation up to the 8th order. The regression specification error test (RESET) equation includes the squared fitted series; similar results emerge when the RESET equation includes a quadratic time trend (as proposed by Baghestani, 1991)…”

Section: Resultsmentioning

confidence: 80%

Real exchange rate synchronization in the NAFTA region

Baghestani

2021

JES

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Purpose The literature mostly investigates the impact of trade and financial integration on business cycle synchronization. The author differs by focusing on the real effective exchange rate as the target variable in the North American Free Trade Agreement (NAFTA) region. In particular, the author investigates synchronization by analyzing the short- and long-run dynamics of the real effective exchange rates of Canada, Mexico and the US for 2008–2019. Design/methodology/approach The author first employs stationarity and cointegration tests to specify and estimate the long-run equilibrium relation between the real effective exchange rates of Canada, Mexico and the US. The author then specifies and estimates an error-correction model for each real effective exchange rate in order to investigate whether the adjustment in eliminating disequilibrium is asymmetric. Findings The results indicate that the real effective exchange rates of Canada, Mexico and the US are cointegrated with only one long-run equilibrium relation. Canada's real effective exchange rate responds symmetrically to eliminate both negative and positive disequilibrium with a similar speed of adjustment. However, the response of Mexico's real effective exchange rate is asymmetric, as it responds to eliminate only positive disequilibrium. The US real effective exchange rate does not respond to disequilibrium, perhaps because it has a large economy with much stronger competition beyond the NAFTA region than both Canada and Mexico. Originality/value This is the first study that investigates real effective exchange rate synchronization in the NAFTA region.

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Section: Resultsmentioning

confidence: 80%

Real exchange rate synchronization in the NAFTA region

Baghestani

2021

JES

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“…The RESET test by Ramsey (1969) is a convenient device for testing general misspecification (e.g., Vitaliano 1987;Baghestani 1991;Peters 2000, among others), but is known not to be robust to autocorrelated disturbances, especially when the regressor is itself highly autocorrelated (Porter and Kashyap 1984) or contains a deterministic time trend (Leung and Yu 2001). Using simulation, Porter and Kashyap showed that the presence of serially correlated disturbances combined with an AR(1) regressor leads to size distortions, and the more autocorrelated the regressor is, the less robust the RESET test is to error autocorrelation.…”

Section: Introductionmentioning

confidence: 99%

Testing Linearity in Cointegrating Relations With an Application to Purchasing Power Parity

Hong

Phillips

2010

Journal of Business & Economic Statistics

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This article shows that when applied to nonstationary time series, the conventional Regression Error Specification Test (RESET) leads to severe size distortion and its asymptotic distribution involves a mixture of noncentral χ 2 distributions. Nonstationarity introduces bias terms in the limit distribution, and appropriate corrections for the bias are presented leading to a modified RESET test that has a central χ 2 limit distribution. In simulations, this modified test is shown to have power not only against nonlinear cointegration but also against the absence of cointegration. In an empirical illustration, the linear purchasing power parity (PPP) specification is tested using five Organization for Economic Cooperation and Development (OECD) countries.

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Assessment of forced retention efficiency in stormwater drainage systems

Pochwat

2024

Journal of Environmental Management

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Application of the RESET test to the original Andersen-Jordan equation

Cited by 3 publications

References 10 publications

Real exchange rate synchronization in the NAFTA region

Real exchange rate synchronization in the NAFTA region

Testing Linearity in Cointegrating Relations With an Application to Purchasing Power Parity

Assessment of forced retention efficiency in stormwater drainage systems

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