On the Choice of Instruments in Mixed Frequency Specification Tests
Econometrics
2018-09-17 v1
Abstract
Time averaging has been the traditional approach to handle mixed sampling frequencies. However, it ignores information possibly embedded in high frequency. Mixed data sampling (MIDAS) regression models provide a concise way to utilize the additional information in high-frequency variables. In this paper, we propose a specification test to choose between time averaging and MIDAS models, based on a Durbin-Wu-Hausman test. In particular, a set of instrumental variables is proposed and theoretically validated when the frequency ratio is large. As a result, our method tends to be more powerful than existing methods, as reconfirmed through the simulations.
Cite
@article{arxiv.1809.05503,
title = {On the Choice of Instruments in Mixed Frequency Specification Tests},
author = {Yun Liu and Yeonwoo Rho},
journal= {arXiv preprint arXiv:1809.05503},
year = {2018}
}