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Formulating wald tests of the restrictions implied by the rational expectations hypothesis
Author(s) -
Gregory Allan W.,
Veall Michael R.
Publication year - 1987
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/jae.3950020105
Subject(s) - wald test , econometrics , multiplicative function , parameterized complexity , rational expectations , aggregate (composite) , monte carlo method , sample (material) , series (stratigraphy) , mathematics , statistical hypothesis testing , economics , statistics , algorithm , mathematical analysis , paleontology , materials science , chemistry , chromatography , composite material , biology
In this paper, we examine the small sample properties of alternative formulations of Wald tests of non‐linear restrictions implied by the rational expectations hypothesis. A Monte Carlo analysis is presented as well as an example using Canadian aggregate time series data. The evidence indicates that Wald test results are extremely sensitive in small samples to the way in which the non‐linear restrictions in such models are parameterized, with a multiplicative form yielding tests of most accurate size. Least squares degrees of freedom adjustments also improve the sample performance of the tests.