On the Choice of Instruments in Mixed Frequency Spefici cation Tests

• Activity Number: 33 - Applications in Time Series Analysis
• Type: Contributed
• Date/Time: Sunday, July 29, 2018 : 2:00 PM to 3:50 PM
• Sponsor: Business and Economic Statistics Section
• Author(s): Yun Liu* and Yeonwoo Rho
• Companies: Michigan Technological University and Michigan Technological University
• Keywords: Mixed frequency data; specification test; a Durbin-Wu-Hausman type test; instruments

Abstract

The time averaging of the high-frequency variable is a traditional approach to have the mixed frequency variables in one regression model. Mixed data sampling (MIDAS) regression models are proposed as an alternative, as time averaging may omit some crucial information in the high-frequency variable. However, if the time averaging is good enough, the nonlinear estimation involved in the MIDAS estimation can be avoided. In this paper, based on a Durbin-Wu-Hausman type test, we propose a specification test for time averaging models against the mixed data sampling regression model. In particular, a set of instruments is proposed and theoretically validated when the frequency ratio is large enough. This finding is supported in finite samples as well.